The Baldwin Company currently has the following balances on their balance sheet: Total Liabilities $73,225 Common Stock $12,173 Retained Earnings $91,949 Suppose next year the Baldwin Company generates $36,500 in net profit and pays $15,000 in dividends and total liabilities and common stock remain unchanged. What must their total assets be next year?

Their total assets next year has to be $124,725

Explanation:

Step 1: Determine the initial assets and liabilities

The total assets can be expressed as;

A=C+E

where;

A=total assets

C=common stock

E=retained earnings

In our case;

A=unknown

C=$12,173

E=$91,949

replacing;

A=12,173+91,949=$104,122

Step 2: Determine total liabilities

Total liabilities=initial liability+dividends

where;

Initial liability=$73,225

dividends=$15,000

replacing;

Total liabilities=73,225+15,000=$88,225

Step 3: Determine new assets

Using the formula;

Net profit=new assets-total liabilities

where;

Net profit=$36,500

new assets=unknown=n

total liabilities=$88,225

replacing;

36,500=n-88,225

n=36,500+88,225=$124,725

n=$124,725

Their total assets next year has to be $124,725