Question

a. The changes in account balances of the Samson Corporation during the year are presented below:

Assets                                        $356,000
Liabilities                                    108,000
Capital stock                               240,000
Additional paid-in capital             24,000

Assuming there are no charges to retained earnings other than for a dividend payment of $52,000, the net income for the year, should be

		$16,000
		$36,000
		$52,000
		$68,000

b. Which of the following is not a discontinued account in the income statement?

		Extraordinary account
		Unusual or in frequent account
		Income from discontinued business
		Impact of accounting changes

c. United Airlines’ 2016 balance sheet reported the following (in millions)

Total Assets                $40,091
Total Liabilities             31,485
Contributed Capital      3,573

What was United Airlines’ total liabilities and stockholders’ equity at December 31, 2016?

		$36,518 million
		$40,091 million
		$35,058 million
		$8,606million

Answer 1

A.)

In the given question, we need to calculated the profit. we know that Assets = Liabilities + Owner's equity. Further, owner's equity includes Retailed earnings till prior years+current year's profit. Hence the current year's profit will get impacted by the change in Asset or liabilities to make the balance sheet equal. Suppose, there is an increase in Asset by $100 and no change in liabilities and capital, there must be a change in the Retained earnings so that the both sides of the balance sheet is matching.

hence, if there is any increase in Assets side, the profit will get increased or vice versa assuming other factors constant.

. Or, if there is any increase in Liabilities, the profit will get decreased and vice versa assuming other factors constant.

Considering above, the answer is as follows -

      thus, retained earnings+Current year's profit will decrease by 16000. This 16,000 is after considering dividend payment of $52,000. the Dividend is a charge to Retained earnings which is paid out of the earnings and hence makes the earnings decreased. If the company would not have paid the divided the retained earnings would be = -16,000+52000 = 36,000. Thus there would be an increase by 36,000 in the Retained earnings which is because of nothing but the current year's profit. hence the increase in current year's profit is 36,000 which has become (16,000) after payment of dividend.

Hence the answer is (B). Thanks.

B). This question is straight forward. Total assets, liabilities and capital are given in the question. We know the basic equation of accoungin that Total Assets = Total liabilities plus stockholders' equity. Stockholders' equity includes Capital and Retained earnings.

in the question, total assets are given and we are asked to compute the Total liabilities and stockholders' equity. As per the above equation, Total liabilities and stockholders' equity should be equal to Total assets which is $40,091 million as given. Hence this shall be the Total liabilities and stockholders' equity - $40,091 million. The answer is (B).

Please let me know if you have any confusion.

Thank you.