Question

"Redfox Pest Control Service had revenues of $425,000 and expenses of $338,000 for the current year, ended June 30. At the beginning of the year, the common stock was $110,000 and the retained earnings was $70,000. During the year, shareholders purchased an additional $25,000 in stock. Dividends of $16,750 were paid. What is the balance of stockholders' equity at the end of the year?"

Answer 1

Answer: The options are given below:

A. $292,000

B. $267,250

C. $205,250

D. $275,250

The answer is D. $275,250

Explanation:

Net profit = 425,000 - 338,000 = $87,000

Common Stock =110,000 + 25,000 = $135000

Retained Earnings = 70,000 + 87,000 = $157000

Less: Dividend paid = -$16,750

We will calculate shareholders equity as follows:

Total shareholders' Equity = common stock + retained earnings - dividend paid

=> $135000 + $157000 - $16,750

= $275,250

Answer 2

Answer:

$275,250

Explanation:

This could be found by the following formula:

Closing Equity = Opening Common Stock + Retained Earnings + Additional Stock issues during the year + Profit - Dividend

By putting values we have:

Closing Equity = $110,000 + $70,000 + $25,000 + ($425,000 of sales - $338,000 Expenses) - $16,750 = $275,250