The statement of stockholders' equity shows an $8,000 increase in the common stock account, a $22,000 increase in the paid-in capital in excess of par--common stock account, and a $100,000 increase in retained earnings. If the common stock has a par value of $3 and dividends of $10,000 were declared and paid during the year, what is the amount of net income for the year?

Question

Quizplus · Accepted Answer

The statement of stockholders' equity provides information about the changes in the equity section of a company's balance sheet over a period of time. To determine the amount of net income for the year, we need to consider the changes in the common stock, paid-in capital in excess of par, retained earnings, and the dividends declared and paid.
Here's the information given:
1. Increase in common stock account: $8,000
2. Increase in paid-in capital in excess of par--common stock account: $22,000
3. Increase in retained earnings: $100,000
4. Dividends declared and paid: $10,000
5. Par value of common stock: $3
The increase in the common stock account is likely due to the issuance of new shares. Since the par value of the common stock is $3, we can calculate the number of shares issued by dividing the increase in the common stock account by the par value per share:
Number of shares issued = Increase in common stock account / Par value per share
Number of shares issued = $8,000 / $3
Number of shares issued = 2,666.67 shares (since shares cannot be in fractions, this would be rounded to a whole number, but for the purpose of this calculation, we'll use the exact figure)
The increase in paid-in capital in excess of par represents the additional amount paid by shareholders over the par value of the shares. This does not affect net income, as it is a transaction with shareholders.
Retained earnings increase when a company earns net income and decrease when dividends are paid out. The formula to calculate the change in retained earnings is:
Change in Retained Earnings = Net Income - Dividends Declared
We are given the increase in retained earnings ($100,000) and the dividends declared and paid ($10,000). We can rearrange the formula to solve for net income:
Net Income = Change in Retained Earnings + Dividends Declared
Net Income = $100,000 + $10,000
Net Income = $110,000
Therefore, the amount of net income for the year is $110,000, which corresponds to option c.

The Statement of Stockholders' Equity Shows an $8,000 Increase in the Common