Question

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E1-21 Using the accounting equation Wizco Advertising's balance sheet data at May 31, 2018, and June 30, 2018, follow: June 30, 2018 May 31, 2018 $ 122,000 Total Assets $ 287,000 Total Liabilities 66,000 6,000 144,000 For each of the following situations that occurred in June, 2018 with regard to common stock and dividends of a corporation, compute the amount of net income or net loss during June 2018. a. The company issued $10,000 of common stock and paid no dividends. b. The company issued no common stock. It paid cash dividends of $3,000. c. The company issued $12,500 of common stock and paid cash dividends of $30,000.

Answer 1

Calculate equity on May 31, 2018 and June 30, 2018, as follows:

	May 31, 2018	June 30, 2018
Total Assets	122000	287000
Less: Total liabilities	66000	144000
Equity	56000	143000

a.

The company's equity increased by $87,000 ($143,000 - $56,000).

The company issued common stock for $10,000 and paid no dividends.

Therefore,

Net income for June 2018 = Increase in equity - Common stock issued = $87,000 - $10,000 = $77,000

b.

The company's equity increased by $87,000 ($143,000 - $56,000).

The company issued no common stock and paid cash dividends of $3,000.

Therefore,

Net income for June 30 = Increase in equity + Cash dividends paid = $87,000 + $3,000 = $90,000

c.

The company's equity increased by $87,000 ($143,000 - $56,000).

The company issued common stock for $12,500 and paid cash dividends of $30,000.

Therefore,

Net income for June 30 = Increase in equity - Common stock issued + Cash dividends paid

                                       = $87,000 - $12,500 + $30,000

                                       = $104,500