Question

Nittany, Inc. had the following balances on its balance​ sheet:

	Assets	Liabilities
December 31, 2018	$300,000	$250,000
December 31, 2019	$400,000	$320,000

During​ 2019, Nittany, Inc. had revenues of​ $850,000 and expenses of​ $650,000. No new stock was issued. The amount of dividends for 2019 was​ ________.

Answer 1

• Assets = Liabilities + Shareholders' equity
• Shareholders' equity = Assets - Liabilities

• Shareholders' equity has increased by $30,000. (i.e. from $50,000 in 2018 to $80,000 in 2019)
• It is given that no new stock was issued. This means the change in shareholders' equity is wholly due to net income and dividends.
• Net income for the year 2019 = Revenues - Expenses = $850,000 - $650,000 = $200,000
• Beginning Shareholder's Equity + Net Income - Dividends = Ending Shareholders' Equity
  • Dividends = Beginning Shareholder's Equity + Net Income - Ending Shareholders' Equity = $50,000 + $200,000 - $80,000 = $170,000
• Alternatively, Change in shareholders' equity = Net income - Dividends
  • Dividends = Net income - Change in shareholders' equity = $200,000 - $30,000 = $170,000