Net Income and Stockholders\' Equity for Four Businesses Four different corporat

Question

Net Income and Stockholders' Equity for Four Businesses Four different corporations, Cancer, Libra, Sagittarius, and Virgo, show the same balance sheet data at the beginning and end of a year. These data, exclusive of the amount of stockholders' equity, are summarized as follows: On the basis of the above data and the following additional information for the year, determine the net income (or loss) of each company for the year. Cancer: No additional common stock was issued, and no dividends were paid. Libra: No additional common stock was issued, but dividends of $5,900 were paid. Sagittarius: Additional common stock of $31,900 was issued, but no dividends were paid. Virgo: Additional common stock of $14,200 was issued, and dividends of $5,300 were paid.

Explanation / Answer

Total Assets Total Liabilities Stockholders equity = Common stock+ Retained earning A B A-B Beginning of the year 81600 32600 49000 End of the year 130600 54900 75700 Movement during the year 49000 22300 26700 Cancer : No additional common stock was issued and no dividend was paid Movement of Stockholders equity = 26700 As no additional common stock was issued , the movement relates to movement in retained earnings which means net income increases by 26700 Libra : No additional common stock was issued and dividend of $ 5900 was paid Movement of Stockholders equity = 26700 As no additional common stock was issued , the movement relates to retained earnings which means net income increases by 26700 after payment of dividend which means that net income before payment of dividends is 26700 + 5900 = 32600 Sagitarius : Additional common stock of 31900 was issued but no divdends were paid Movement of Stockholders equity 26700 Additional common stock issued 31900 Difference is net loss ( 31900 - 26700) 5200 Virgo : Additional common stock of 14200 was issued and divdends of $ 5300 were paid Movement of Stockholders equity 26700 Additional common stock issued 14200 Difference is net income( 26700 - 14200) 12500 Divdend paid 5300 Net Income before dividend 17800 After Dividend Before Dividend Cancer Increase 26700 26700 Libra Increase 26700 32600 Sagitarius ( Net loss) Decrease -5200 -5200 Virgo Increase !2500 17800

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