Question

The company has the following beginning balances in its stockholders' equity accounts on January 1, Year 1: Common Stock, $100,000; Additional Paid-in Capital, $3,600,000; and Retained Earnings, $1,100,000. Net income for the year ended December 31, Year 1, is $510,000.Required:Prepare the stockholders' equity section of the balance sheet for the company as of December 31, Year 1.

Answer 1

Answer Balance sheet December31

$

Common stock. 100,000

Paid in capital. 3,600,000

Retained earnings. 1,610,000

Total. 5,310,000

Explanation:

The equity section of the balance sheet contains the equity issued and other capital provided by the owner for running the company.

The retained earnings represents balance from the previous years income accounts balance.

The current year income account balance at the year end is added to the accumulated retained earnings balance at the beginning of the year.

This is why $510,000 was added to $1,100,000.