Question

The following financial statement information is from five separate companies.

Company Company Company Company Company

A B C D E

December 31, 2016

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(55,000 \)34,000 \(24,000 \)60,000 $119,000

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 24,500 21,500 9,000 40,000 ?

December 31, 2017

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,000 40,000 ? 85,000 113,000

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . ? 26,500 29,000 24,000 70,000

During year 2017

Stock issuances . . . . . . . . . . . . . . . . . . . . 6,000 1,400 9,750 ? 6,500

Net income (loss) . . . . . . . . . . . . . . . . . . . 8,500 ? 8,000 14,000 20,000

Cash dividends . . . . . . . . . . . . . . . . . . . . . 3,500 2,000 5,875 0 11,000

Required

1. Answer the following questions about Company B.

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 net income for year 2017?

Short answer

The equity for 2016 is $13,000, and for 2017 is $13,500. The net income for 2017 is $1,100.

Step-by-step solution

Step-by-Step solutionStep 1 Calculation of equity for 2016

$$\begin{gathered} \mathbf{Equity}\mathbf{=}\mathbf{Assets}\mathbf{-}\mathbf{Liabilities} \\ \mathbf{=}\mathbf{34}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{21}\mathbf{,}\mathbf{500} \\ \mathbf{=}\mathbf{\$}\mathbf{13}\mathbf{,}\mathbf{000} \end{gathered}$$

Calculation of equity for 2017

$$\begin{gathered} \mathbf{Equity}\mathbf{=}\mathbf{Assets}\mathbf{-}\mathbf{Liabilities} \\ \mathbf{=}\mathbf{40}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{26}\mathbf{,}\mathbf{500} \\ \mathbf{=}\mathbf{\$}\mathbf{13}\mathbf{,}\mathbf{500} \end{gathered}$$

Calculation of Net Income for 2017

$$\begin{gathered} \mathbf{NetIncome}\mathbf{=}\mathbf{NewEquity}\mathbf{-}\mathbf{(}\mathbf{Equity}\mathbf{+}\mathbf{Stockissue}\mathbf{-}\mathbf{Cashdividends}\mathbf{)} \\ \mathbf{=}\mathbf{13}\mathbf{,}\mathbf{500}\mathbf{-}\mathbf{(}\mathbf{13}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{400}\mathbf{-}\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{)} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{100} \end{gathered}$$