George Carpenter is the sole stockholder and operator of XYZ, Inc. a consulting

Question

George Carpenter is the sole stockholder and operator of XYZ, Inc. a consulting firm. At the end of its accounting period, December 31, 2015, XYZ, Inc. has assets of $400,000 and liabilities of $145,000. Using the accounting equation and considering each case independently, determine the following amounts:

a) Stockholder’s equity on 12/31/2015.

b) The amount and direction (increase or decrease) change in stockholder’s equity if, during 2016, assets increased by $45,000 and liabilities decreased by $10,000.

c) Net income (or net loss) during 2016, assuming that as of December 31, 2016, assets were $410,000, liabilities were $147,000, capital stock of $3,000 was issued, and dividends of $8,000 were paid.

Explanation / Answer

Given that- as on Dec -15 Assets $400,000 liabilities $145,000 Answer a) Stockholder’s equity we know that -   Asset = Liabilities + Equity therefor share holder's equity = 400000-145000 $255,000 Answer b) i ii iii=i+ii Given that- as on Dec -15 Increase as on Dec -2016 a Assets $400,000 45000 $445,000 b liabilities $145,000 10000 $155,000 c=a-b Share holder equity $255,000 $35,000 $290,000 Hence, shareholder's equity increased by $35000 Answer c) i ii Given that- as on Dec -15 as on Dec -2016 a Assets $400,000 $410,000 b liabilities $145,000 $147,000 c Share holder equity $255,000 $263,000 d Change in equity = 263000-255000 $8,000 e Add: Dividend paid 8000 f Less : issue of equity $3,000 g=d+e-f Net income $13,000

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