Answer:
Bosley Company
Calculation of Net Income or Net Loss during the year ended January 31, 2019, under three independent situations:
Situation 1. Bosley issued $5 million of stock and declared no dividends.
Net Loss = stockholders' equity, January 31, 2018 plus new issue of stock less stockholders' equity, January 31, 2019
= $51 + 5 - 31 = $25 million
Situation 2. Bosley issued no stock but declared dividends of $8 million.
Net loss = stockholders' equity, January 31, 2018 less (dividends + stockholders' equity, January 31, 2019)
= $51 - (8 + 31) = $12 million
Situation 3. Bosley issued $10 million of stock and declared dividends of $50 million :
Net income = (stockholders' equity, January 31, 2019 plus dividends) minus (stockholders' equity, January 31, 2018 plus Issuance of stock)
= ($31 + 50) - ($51 + 10) = $20 million
Explanation:
a) Data and Calculations:
2018 2019
Total assets 74 48
Total liabilities 23 17
Total stockholders' equity 51 31
Stockholders' equity according to the accounting equation = Assets minus Liabilities for each year.
b) Situation 1. Bosley issued $5 million of stock and declared no dividends.
($' million)
Total stockholders' equity, January 31, 2018 51
Add: Issuance of stock 5
Net income 0
Less: Dividends declared 0
Net loss (25 )
Total stockholders' equity, January 31, 2019 31
Net Loss = stockholders' equity, January 31, 2018 plus new issue of stock less stockholders' equity, January 31, 2019
= $51 + 5 - 31 = $25 million
c) Situation 2. Bosley issued no stock but declared dividends of $8 million.
($' million)
Total stockholders' equity, January 31, 2018 51
Add: Issuance of stock 0
Net income 0
Less: Dividends declared (8 )
Net loss (12 )
Total stockholders' equity, January 31, 2019 31
Net loss = stockholders' equity, January 31, 2018 less (dividends + stockholders' equity, January 31, 2019)
= $51 - (8 + 31) = $12 million
d) Situation 3. Bosley issued $10 million of stock and declared dividends of $50 million
($' million)
Total stockholders' equity, January 31, 2018 51
Add: Issuance of stock 10
Net income 20
Less: Dividends declared (50 )
Net loss 0
Total stockholders' equity, January 31, 2019 31
Net income = (stockholders' equity, January 31, 2019 plus dividends) minus (stockholders' equity, January 31, 2018 plus Issuance of stock)
= ($31 + 50) - ($51 + 10) = $20 million