Question

Questions 1-3 please.

Searc Homework Questions 1) For each of the following companies, calculate the missing amounts. Assets Liabilities Equity Parcel Corp. $100 $80 Box Inc. $230 $170 Bag Co. $45 $105 2) Ground Inc. had $100 of equity at the beginning of the year. During the year, Ground earned $30 of net income (profit) and paid $12 of cash dividends to its owners (shareholders). a) How do the net income and dividends affect equity? (i.e. do they increase it, decrease it, or have no effect) b) How much equity does Ground have at the end of the year? 3) Thinking about the accounting equation, explain why profits are beneficial to the owners of a company.

Answer 1

1)

We know the Assets = Liabilities + Equity

Parcel Corp
100 = 80 + Equity
Equity = 20

Box Inc
230 = Liabilities + 170
Liabilities = 60

Bag Co
Assets = 45 + 105 = 150

2)

a)
Net Income INCREASES the equity because it is the return the company has generated over the time period.
Dividend DECREASES the equity because it is the portion of Net Income that the company pays out to the holders.

b)
Equity at end = Equity at beginning + Net Income - Dividend = 100 + 30 - 12 = 118

3)

Assets = Liabilities + Equity

See the accounting equation, EQUITY belongs to the owners. The more the equity, the better it is for the owners.

Profits INCREASE the equity. If equity is increasing, either the liabilities would DECREASE or the ASSETS will increase to balance the equation.

Increasing of Assets is good as well as decreasing of liabilities. So profits are beneficial to the owners.