Answer:
a. If the company issued $10,000 of common stock and paid no dividends
Net income = $87,000 - $10,000
= $77,000
b. If the company issued no common stock but paid cash dividends of $3,000.
Net income = $87,000 + $3,000
= $90,000
c. company issued $12,500 of common stock and paid cash dividends of $30,000
Net income = $87,000 - $12,500 + $30,000
= $104,500
Explanation:
The accounting equation shows the relationship between the elements of a balance sheet which are assets liabilities and equity. This may be expressed mathematically as
Assets = Liabilities + Equity
hence for May 31, 2018
$122,000 = $66,000 + Equity
Equity = $122,000 - $66,000
= $56,000
For June 30, 2018
$287,000 = $144,000 + Equity
Equity = $287,000 - $144,000
= $143,000
Difference in equity between the two dates
= $143,000 - $56,000
= $87,000
The equity is made up of common stock and retained earnings. The retained earnings is the accumulated balance of net income/loss over the period. This balance is reduced when dividend is paid to shareholders. Equity balance increases when shares are issued.
