Question

A company has the following selected data on May 31, 2018, and June 30, 2018: (Click the icon to view the balance sheet data.) For each of the following independent assumptions for June, 2018 compute the amount of net income or net loss during June 2018. (Use a minus sign or parentheses for a net loss.) a. The company issued $5,000 of common stock. It didn't declare or pay any dividends. Data Table Net income (loss) = $ 197000 b. The company issued no common stock. It declared & paid dividends of $9,000. Net income (loss) = $ 0 Total Assets May 31, 2018 June 30, 2018 $ 133,000 $ 202,000 122,000 133,000 c. The company issued $35,000 of common stock, and declared & paid dividends of $12,000. Total Liabilities Net income (loss) = $ Print Done

Answer 1

First we will calculate the stockholder's equity for May and June as per below:

As per accounting equation,

Assets = Liabilities + Stockholder's equity

In May, stockholder's equity was

$133000 = $122000 + Stockholder's equity

Stockholder's equity = $133000 - $122000 = $11000

In June, stockholder's equity was

$202000 = $133000 + Stockholder's equity

Stockholder's equity = $202000 - $133000 = $69000

Change in stockholder's equity = $69000 - $11000 = $58000 (increase)

(a) Out of increase in equity of $58000 in June, $5000 is due to common stock issue. So, balance will be due to net income.

Increase in stockholder's equity = Common stock issue + Net income - Dividends

$58000 = $5000 + Net income - $0

Net income = $58000 - $5000 = $53000

(b) Increase in stockholder's equity = Common stock issue + Net income - Dividends

$58000 = $0 + Net income - $9000

Net income = $58000 + $9000 = $67000

(c) Increase in stockholder's equity = Common stock issue + Net income - Dividends

$58000 = $35000 + Net income - $12000

Net income = $58000 - $23000 = $35000