Question

Stone Company has beginning equity of $1,200,000, net income of $200,000, dividends of $120,000 and investments by owners in exchange for stock of $40,000. Its ending equity is:
A. $ 892,000
B. $ 960,000
C. $1,072,000
D. $1,320,000

Answer 1

Answer:

The correct answer is D. $1,320,000 .

Explanation:

In this case, it should be considered that the Stone Company is just beginning to operate, so the capital at the end of the period is made up of the following:

Initial Capital: $ 1,200,000

Dividends: $ 120,000

TOTAL = $ 1,320,000

Net income is not part of the measurement of capital, since information on expenses must be available to calculate the profit or loss for the period. For its part, investments in shares are considered a current asset and do not enter into this calculation.