Question

At September 1, 2014, Promise Ring Co. reported stockholders' equity of $136,000. During the month, Promise Ring generated revenues of $38,000, incurred expenses of $21,000, and purchased equipment for $5,000. What is the amount of stockholders' equity at September 30, 2014?

Answer 1

Answer: $153,000

Explanation:

Stockholders' equity, also known as shareholders equity, is the book value of the organisation. In other words it is the assets left over after all liabilities have been deducted (Equity = Assets - Liabilities). This equity consists of 2 elements: The ordinary share equity (capital), which is the montary value of the shares issued by an organisation, and retained earnings, which is the amount of income left over after dividends have been paid out. In this case the stockholders equity is calculated as follows:

Opening balance: $136,000

Revenue for September: +$38,000

Expenses: - $21,000

Total: $153,000

Purchased equipment of $5,000 is not included in this figure, as it falls under assets and is accounted as such. Once accounted, then the total assets figure will be used to deduct liabilities from, and the balance must equal the shareholders equity ($153,000) above.