The December 31,2014,balance sheet of Giorgio Inc.,reported total assets of $1,050,000 and total liabilities of $680,000.The following information relates to the year 2015:
•Madden Inc.issued an additional 5,000 shares of common stock at $25 per share on July 1,2015.
•Madden Inc.paid dividends totaling $80,000.
•Net income for 2015 was $110,000.
•No other changes occurred in stockholders' equity during 2015.
The stockholders' equity section of the December 31,2015,balance sheet would report a balance of
A)$400,000.
B)$685,000.
C)$525,000.
D)$835,000.

Question

Quizplus · Accepted Answer

The increase in common stock from Madden Inc.'s issuance of 5,000 additional shares at $25 per share would result in an increase in the common stock account of:

5,000 shares x $25 = $125,000

The payment of dividends totaling $80,000 would result in a decrease in retained earnings of:

$110,000 (net income) - $80,000 (dividends) = $30,000

Therefore, the total stockholders' equity at December 31, 2015 would be:

Common stock: $125,000
Retained earnings: $345,000 ($375,000 beginning balance + $30,000 net income - $80,000 dividends)
Total stockholders' equity: $525,000 ($125,000 + $345,000)

The December 31,2014,balance Sheet of Giorgio Inc