[vodrldnr]

Mirr, Inc. was incorporated on January 1, 2011, with proceeds from the issuance of $750,000 in stock and borrowed funds of $110,000. During the first year of operations, revenues from sales and consulting amounted to $82,000, and operating costs and expenses totaled $64,000. On December 15, Mirr declared a $3,000 cash dividend, payable to stockholders on January 15, 2012. No additional activities affected owners’ equity in 2011. Mirr’s liabilities increased to $120,000 by December 31, 2011. On Mirr’s December 31, 2011 balance sheet, total assets should be reported at

A. $885,000 <—- ANSWER

B. $882,000

C. $878,000

D. $875,000

Explanation:

Answer A is correct. Mirr began operations on 1/1/11 with the following balance sheet elements:

Assets=Liabilities+Owners’ equity

$860,000=$110,000+$750,000

During 2011, liabilities increased to $120,000, and owners’ equity increased to $765,000 [$750,000 beginning balance + $18,000 net income ($82,000 revenues – 64,000 expenses) – $3,000 dividends declared]. Therefore, 12/31/11 assets must be $885,000.

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Why subtract 3,000. The problem did not say Dividend has been paid.

I know on declaration date JE will be like RE XXX | DIVIDEND PAYABLE XXX which result in Deacrease of Equity and Increase of Liability.

[Jdn9201]

You answered your own question. 🙂 You hit RE for the dividend when it's declared, which reduces RE and thereby reduces equity. Entry on declaration:

Retained earnings 3,000
Div. Payable 3,000

Then when you pay:
Div Payable 3,000
Cash 3,000

BEC - 88 8/29/15
REG - 82 11/14/15
AUD - 83 1/8/16
FAR - 80 2/29/16

[Bnots]

jdn beat me to it.

ETA: Only $7,000 of your increase in liabilities corresponds to an increase in assets. The other $3,000 is the dividend payable.

You can check this with the owners equity as well (Beginning OE + NI – DIV):
$750,000 + $18,000 – $3,000 = $765,000

Assets $885,000
Liabilities $120,000
Owners Equity $765,000

[vodrldnr]

thank you so much

[Author]

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