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Chapter 1: Q21E (page 38)

Wizco Advertising鈥檚 balance sheet data at May 31, 2018, and June 30, 2018, follow:

May 31, 2018 June 30, 2018

Total Assets \( 122,000 \) 287,000

Total Liabilities 66,000 144,000

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.

Short Answer

Expert verified

(a) Net income equals $77,000.

(b) Net income equals $90,000.

(c) Net income equals $104,500

Step by step solution

01

Step-by-Step-SolutionStep 1: Calculation of Total Equity

Total equity as on May 31,2018 and June 30, 2018 equals:

Equity鈥�May31,2018=Assets鈭�Liabilities=$122,000鈭�$66,000=$56,000

role="math" localid="1651215169385" Equity鈥�June30,2018=Assets鈭�Liabilities=$287,000鈭�$144,000=$143,000

02

Calculation of Net Income (Loss)

(a) Net income (loss) is calculated as follows:

NetIncome(Loss)=(Equity鈥�June30,2018鈭�Equity鈥�May31,2018)鈭�CommonStockIssued=($143,000鈭�$56,000)鈭�$10,000=$77,000

03

Calculation of Net Income (Loss)

(b) Net income (loss) is calculated as follows:

NetIncome(Loss)=(Equity鈥�June30,2018鈭�Equity鈥�May31,2018)+Dividends=($143,000鈭�$56,000)+$3,000=$90,000

04

Calculation of Net Income (Loss)

(c) Net income (loss) is calculated as follows:

NetIncome(Loss)=(Equity鈥�June30,2018鈭�Equity鈥�May31,2018)鈭�CommonStockIssued+Dividends=($143,000鈭�$56,000)鈭�$12,500+$30,000=$104,500

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Most popular questions from this chapter

You would like to start a cellular telephone equipment service business. You are considering organizing the business as a sole proprietorship. Identify the advantages and disadvantages of owning a sole proprietorship.

Michael McNamee is the proprietor of a property management company,Apartment Exchange, near the campus of Pensacola State College. The business has cash of \(8,000 and furniture that cost \)9,000 and has a marketvalue of \(13,000. The business debts include accounts payable of \)6,000. Michael's personal home is valued at \(400,000, and his personal bank accounthas a balance of \)1,200. Consider the accounting principles and assumptionsdiscussed in the chapter, and identify the principle or assumption that best matches the situation:

a. Michael's personal assets are not recorded on the Apartment Exchange's

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value of \)13,000.

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d. Michael expects the Apartment Exchange to remain in operation for the

foreseeable future

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