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22 February, 19:05

Clark had no stock transactions in 2018 , so the change in stockholders' equity for 2018 was due to net income and dividends. If dividends were $ 55 comma 000 , how much was Clark 's net income for 2018 ? Use the accounting equation and the statement of retained earnings.

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  1. 22 February, 22:04
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    The question is not complete.

    Here is the complete question:

    Stockman Company had the following on the dates indicated:

    12/31/18 12/31/17

    total assets $540,000 $320,000

    total liabilities 33,000 29,000

    Stockman had no stock transactions in 2018 , so the change in stockholders' equity for 2018 was due to net income and dividends. If dividends were $65,000 , how much was Stockman 's net income for 2018 ? Use the accounting equation and the statement of retained earnings.

    Here is the answer:

    Explanation:

    Accounting equation is given by:

    Total Assets = Total Liabilities + Equity.

    The first step is to determine the retained earnings at the beginning of the year:

    As at 12/31/2017

    Total Assets ($) = Total Liabilities ($) Equity ($)

    320,000 29,000 + 291,000 (i)

    i. The balancing figure amounts to retained earnings at the beginning of the year: $291,000.

    To determine the net income for the current year, find the closing balance value for one complete side of the accounting equation (asset)

    Total Assets ($) = Total Liabilities ($) Equity ($)

    540,000 33,000 + x

    The missing figure x is made up of closing retained earnings for the period which consist of opening retained earnings plus net income minus dividend. And the value of closing retained earnings suppose to balance off the other side of the equation = $540,000 - $33,000

    = $507,000.

    The balance of the closing retained earnings suppose to $507,000 in order to balance the other side.

    It can be represented as follow:

    = Opening retained earnings + Net income - Dividend

    $507,000 = $291,000 + x - $65,000

    $507,000 = $291,000 - $65,000 + x

    $507,000 = $226,000 + x

    = $281,000
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