Question

The following financial statement information is from five separate companies.

Company Company Company Company Company

V W X Y Z

December 31, 2016

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . \(54,000 \) 80,000 \(141,500 \)92,500 $144,000

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 60,000 68,500 51,500 ?

December 31, 2017

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,000 100,000 186,500 ? 170,000

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 36,000 ? 65,800 42,000 42,000

During year 2017

Stock issuances . . . . . . . . . . . . . . . . . . . 5,000 20,000 ? 48,100 60,000

Net income (or loss) . . . . . . . . . . . . . . . . ? 40,000 18,500 24,000 32,000

Cash dividends . . . . . . . . . . . . . . . . . . . 5,500 2,000 0 20,000 8,000

Required 1. Answer the following questions about Company V.

a. What is the amount of equity on December 31, 2016?

b. What is the amount of equity on December 31, 2017?

c. What is the net income or loss for the year 2017?

Short answer

The equity of 2016 is $29,000, equity of 2017 is $23,000 and the net loss for 2017 is $5,500.

Step-by-step solution

Calculation of Equity of 2016

$\begin{array}{rcl}\mathrm{Equity}& =& \mathrm{Assets}-\mathrm{Liabilities}\\ & =& \$54,000-\$25,000\\ & =& \$29,000\end{array}$

Computation of equity of 2017

$\begin{array}{rcl}\mathrm{Equity}& =& \mathrm{Assets}-\mathrm{Liabilities}\\ & =& \$59,000-\$36,000\\ & =& \$23,000\end{array}$

Computation of net income or loss of 2017

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}\mathrm{or}\left(\mathrm{loss}\right)& =& \mathrm{New}\mathrm{equity}-\left(\mathrm{Old}\mathrm{equity}+\mathrm{Stock}\mathrm{issue}-\mathrm{Cash}\mathrm{dividends}\right)\\ & =& \$23,000-\left(\$29,000+\$5,000-\$5,500\right)\\ & =& -\$5,500\end{array}$