Question

The right side of the balance sheet shows the firm's liabilities and stockholders' equity. Which of the following best describes shareholders' equity? Equity is the difference between the company's assets and liabilities. Equity is the initial claim on value of the assets before the firm pays off its liabilities. NOW Inc. released its annual results and financial statements. Grace is reading the summary in the business pages of today's paper. In its annual report this year, NOW Inc. reported a net income of $176 million. Last year, the company reported a retained earnings balance of $527 million, whereas this year it increased to $620 million. How much was paid out in dividends this year? $269 million $4 million $420 million $83 million

Answer 1

Answer:

1. Equity is the difference between the company's assets and liabilities.

2. D. $83

Explanation:

Req. A

We know,

The accounting equation is

Total asset = total liabilities + total stockholders' equity

Therefore, total asset - total liabilities = total stockholders' equity

So, we can say that equity is the difference between the company's assets and liabilities. However, equity cannot be claimed before the liabilities. Therefore, the option "A" is the correct answer.

Req. B

                          Now Inc.

      Statement of retained earnings

For the year ended, December 31, 20XX

Beginning retained earnings (Last year)                $527

Add: Net Income (Current year)                                 176

Less: Dividend (Balancing)                                       (83)

Ending retained earning (Current year)                 $620

Calculation: $(527 + 176 - 620) = $83

Therefore, the option "D" is the correct answer.