Question
In: Accounting
The December 31, Year 4, balance sheet for Deen Company showed total stockholders’ equity of $156,000....
The December 31, Year 4, balance sheet for Deen Company showed total stockholders’ equity of $156,000. Total stockholders’ equity increased by $65,000 between December 31, Year 4, and December 31, Year 5. During Year 5, Deen Company acquired $20,000 cash from the issue of common stock. The Company paid a $5,000 cash dividend to the stockholders during Year 5.
Required
Determine the amount of net income or loss Deen reported on its Year 5 income statement. (Hint: Remember that stock issues, net income, and dividends all change total stockholders’ equity.)
Solutions
Expert Solution
Answer
Shareholder's Equity on 31 December, Year 5 = $156,000 + $65,000
= $221,000 (Shareholder's Equity increased by $65,000 between 31st December, year 4 and 31 December, Year 5)
Shareholder's Equity on December 31, Year 5 = Shareholder's Equity on December 31, Year 4 + Net Income - Dividends + Shares Issued
So,
Net Income = Shareholder's Equity on 31 December, Year 5 - Shareholder's Equity on 31 December, Year 4 + Dividends - Shares Issued
Now,
Net Income = $221,000 - $156,000 + $5,000 - $20,000
= $50,000
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