Question

On 1/1/21, the Rainbow Company had total equity of $2,680 of which $1,674 was Retained Earnings. Additional data for 2021 and 2022:
2021 2022
Net Income $450 $210
Common Stock Issued 330 100
Dividends Declared and Paid 170 0

Total Equity at 12/31/22 was:________

Answer 1

Answer:

Total Equity at 12/31/22 was: $3,600

Explanation:

As Rainbow company retained earnings as on 1/1/21 = $1,674

Equity shareholders = $2,680 - $1,674

= $1,006

Calculation of retained earnings as on 1/1/22 and 12/31/22  

By adding $450 which is the net income for 2021 and subtracting the dividend declared and paid ($170) , we get

Retained earnings as on 1/1/22 = $1,954

By adding $210 net income for 2022, we get

Retained earnings as on 12/31/22 = $2,164

Equity shareholders as on 1/1/21 = $1,006

By adding $330  common stock issued in 2021 as well as adding $100  common stock issued in 2022, we get

Equity shareholders as on 12/31/2022 = $1,436

Total equity as on 12/31/22 = $2,164 + $1,436

Therefore total equity at 12/31/22 was $3,600