[jinjuujii]

Mirr, Inc., was incorporated on January 1, 20X0, 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, 20X0, Mirr declared a $3,000 cash dividend, payable to stockholders on January 15, 20X1. No additional activities affected owners’ equity in 20X0. Mirr’s liabilities increased to $120,000 by December 31, 20X0. On Mirr’s December 31, 20X0, balance sheet (statement of financial position), total assets should be reported at:

Can someone tell me why the borrowed funds of $110k is not accounted for in the liability of the company?

the solution is a simple A-L=OE but I don’t understand why the 110k is not a liability.

FAR: 2-27-2015

[excel monkey]

I get $885,000

Common Stock = 750,000 (given)

Liabilities = 120,000 (given, the problem states that liabilities increased to this number, so it includes the original 110,000)

Retained Earnings = 15,000 (82,000 – 64,000 = 18,000 – 3,000 = 15,000)

The dividend, when declared, comes out of retained earnings and goes to dividend payable. The dividend payable amount is already included in the ending liabilities given in the problem.

Hope this helps.

FAR - 91
AUD - 88
BEC - 86
REG - 79

[Anonymous]

is it 885?

110 is still there, it's included in 120

[jinjuujii]

Thank you guys. That made sense now. I read the questions at least 10x and I thought Liability was 120k+110k – was going crazy!

FAR: 2-27-2015

[Author]

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