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6 August, 09:45

Rahls issues stock to investors for $20,000, and has $5,000 of net income in its first year of operations. During Year 2, Rahls earns $10,000 in net income and pays a dividend to stockholders of $4,000. What is the balance in stockholders' equity at the end of year 2?

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  1. 6 August, 13:25
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    The balance in stockholders' equity at the end of year 2 is $31,000

    Explanation:

    For computing the balance in stockholder equity at the end of year 2, first, we have to compute the balance for year 1 which is shown below:

    Year 1 equity balance = Issue of stock + Net income

    = $20,000 + $5,000

    = $25,000

    Now, year 2 balance would equal to

    = Year 1 balance + Net income - Dividend paid

    = $25,000 + $10,000 - $4,000

    = $31,000

    Hence, the balance in stockholders' equity at the end of year 2 is $31,000
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