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:

Answer 1

Total equity of the company is the amount of invested plus the income generated during the year. If any dividend is paid during the year, the amount of dividend is subtracted before arriving at the ending shareholders’ equity.

Ending shareholders’ equity = Amount invested + Net Income – Dividend

= $15000 + ($35000- $23000) - $2000

= $27000

Therefore, shareholders’ equity balance would be $27,000.