Question

The Baldwin Company currently has the following balances on their balance sheet: Total Assets $193,986 Total Liabilities $117,679 Retained Earnings $33,223 Suppose next year the Baldwin Company generates $44,200 in net profit, pays $12,000 in dividends, total assets increase by $55,000, and total liabilities remain unchanged. What will ending Baldwins balance in Common Stock be next year?

A. $65,884

B. $130,284

C. $399,888

D. $301,242

Answer 1

To determine ending Baldwin's balance in Common Stock, we need to consider changes such as net profit, dividends, and total asset increase. By adding the net profit to the retained earnings and subtracting dividends, we find the new retained earnings. Adjusted total assets are calculated by adding the total asset increase to the current total assets. Finally, the difference between adjusted total assets and total liabilities yields the common stock balance.

Step-by-step explanation:

To determine the ending balance in Common Stock, we need to consider the changes in the company's balance sheet. The net profit of $44,200 is added to the Retained Earnings to calculate the ending balance. The dividends of $12,000 are subtracted from the Retained Earnings. The increase in total assets of $55,000 is used to adjust the Total Assets. Since the Total Liabilities remain unchanged, the difference between Total Assets and Total Liabilities represents the Common Stock.

Calculations:

Net profit: $44,200

+ Retained Earnings: $33,223

= Ending Retained Earnings: $77,423

- Dividends: $12,000

= New Retained Earnings: $65,423

Adjusted Total Assets: $193,986 + $55,000 = $248,986

Common Stock: Adjusted Total Assets ($248,986) - Total Liabilities ($117,679) = $131,307