Question

May 31, 2018 June 30, 2018

Answer 1

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.