Question

During its first year of operations, Mario Lupo formed Lupo Company as a corporation and personally invested $15,000 in the business in exchange for common stock. Lupo Company also paid dividends of $2,000. The company earned $35,000 of revenues and incurred $23,000 of expenses. At the end of the year, the company's equity totaled:_____.
a. $13,000.
b. $15,000.
c. $25,000.
d. $75,000.

Answer 1

Answer:

c. $25,000

Explanation:

Calculation to determine At the end of the year, the company's equity totaled:

First step is to calculate the Net income using this formula

Net income= Revenues- Expense

Let plug in the formula

Net income= 35000-23000

Net income=12000

Second step is to calculate Net income added to capital using this formula

Net income added to capital = Net income-Cash dividend

Let plug in the formula

Net income added to capital=12000-2000

Net income added to capital=10000

Now let determine the Ending company total equity using this formula

Ending company total equity= Opening invested capital + Net income added to capital

Let plug in the formula

Ending company total equity=15000+10000

Ending company total equity=$25000

Therefore At the end of the year, the company's equity totaled:$25,000