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Chapter 1: Q23E_2 (page 38)

During 2018, Flowing Rivers Spa reported revenue of \(30,000. Total expenses for the year were \)15,000. Flowing Rivers Spa ended the year with total assets of \(43,000, and it owed debts totaling \)14,000. At year-end 2017, the business reported total assets of \(28,000 and total liabilities of \)14,000. Requirements 1. Compute Flowing Rivers Spa鈥檚 net income for 2018. 2. Did Flowing Rivers Spa鈥檚 stockholders鈥� equity increase or decrease during 2018? By how much?

Short Answer

Expert verified

(1) Net income equals $15,000.

(2) Increase in stockholders鈥� equity by $15,000.

Step by step solution

01

Calculation of net income

Net income is calculated as follows:

Net Income = Revenues - Expenses

= $30,000 - $15,000

= $15,000

02

Calculation of Total Stockholders’ Equity for 2018

Total Stockholders鈥� equity for 2018 End is calculated as follows:

Total Stockholders' Equity 2018 = Assets - Liabilities

= $43,000 - $14,000

= $29,000

03

Calculation of Total Stockholders’ Equity for 2017

Total Stockholders鈥� equity for 2018 End is calculated as follows:

Total stockholders' Equity 2017 = Assets - Liabilities

= $28,000 - $14,000

= $14,000

04

Calculation of increase in stockholders’ equity

Incease in stockholders鈥� equity is calculated as follows:

Inreasein Stockholders' Equity = Total Stockholders' Equity 2018 - Total Stockholders' Equity 2017

= $29,000 - $14,000

= $15,000

Thus, net income is $15,00 and stockholders鈥� equity increase by $15,000.

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