Question

The following financial statement information is from five separate companies.

Company Company Company Company Company

V W X Y Z

December 31, 2016

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . \(54,000 \) 80,000 \(141,500 \)92,500 $144,000

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 60,000 68,500 51,500 ?

December 31, 2017

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,000 100,000 186,500 ? 170,000

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 36,000 ? 65,800 42,000 42,000

During year 2017

Stock issuances . . . . . . . . . . . . . . . . . . . 5,000 20,000 ? 48,100 60,000

Net income (or loss) . . . . . . . . . . . . . . . . ? 40,000 18,500 24,000 32,000

Cash dividends . . . . . . . . . . . . . . . . . . . 5,500 2,000 0 20,000 8,000

Required 5. Compute the amount of liabilities for Company Z on December 31, 2016

Short answer

The total liabilities of Company Z for 2016 are $100,000.

Step-by-step solution

Calculation of Equity of 2017

$\begin{array}{rcl}\mathrm{Equity}& =& \mathrm{Assets}-\mathrm{Liabilities}\\ & =& \$170,000-\$42,000\\ & =& \$128,000\end{array}$

Computation of equity of 2016

$\begin{array}{rcl}\mathrm{Equity}& =& \mathrm{New}\mathrm{equity}-\mathrm{Stock}\mathrm{issuance}-\mathrm{Net}\mathrm{income}+\mathrm{Cash}\mathrm{dividends}\\ & =& \$128,000-\$60,000-\$32,000+\$8,000\\ & =& \$44,000\end{array}$

Computation of liabilities of 2016

$\begin{array}{rcl}\mathrm{Liabilities}& =& \mathrm{Assets}-\mathrm{Equity}\\ & =& \$144,000-\$44,000\\ & =& \$100,000\end{array}$