Answer:
Glucose Control Company
a. The value of total equity would be $58,000 on December 31, 2016.
b. The value of total equity would be $101,000 on December 31, 2016.
c. The value of total equity would be $144,000 on December 31, 2016.
d. The value of total equity would be $101,000 on December 31, 2016.
Explanation:
a) Data and Calculations:
GLUCOSE CONTROL COMPANY
Balance Sheet as of December 31, 2015:
Assets Liabilities and Equity
Cash 8,000 Accounts payable 16,000
Marketable securities 2,000 Notes payable 6,000
Accounts receivable 6,000 Current liabilities 22,000
Inventory 45,000 Long term debt 95,000
Current assets 61,000 Total liabilities 117,000
Machines 34,000 Paid in capital 20,000
Real estate 800,000 Retained earnings 38,000
Fixed assets 114,000 Equity 58,000
Total assets 175,000 Total liab. & equity 175,000
Annual net income for 2016 = $86,000
Scenario A:
Total assets = 261,000 - 86,000 = 175,000
Total liabilities 117,000
Total equity = 144,000 - 86,000 = 58,000
Scenario B:
Total assets = 261,000 - 43,000 = 218,000
Total liabilities 117,000
Total equity = 144,000 - 43,000 = 101,000
Scenario C:
Total assets = 261,000 - 86,000 = 175,000
Total liabilities 117,000 - 86,000 = 31,000
Total equity = 144,000
Scenario D:
Total assets = 261,000 - 43,000 - 2,000 = 216,000
Total liabilities 117,000 - 2,000 = 115,000
Total equity = 144,000 - 43,000 = 101,000
b) The effect of dividend payment on equity is that cash dividends reduce the total equity just as cash is diminished. But when it retains its net income without paying dividends, the total equity is increased just as its assets are bolstered.
