The statement of stockholders' equity for Jutras Corporation shows an increase in the Common Stock account of $8,000, an increase in Additional Paid-in Capital--Common in the amount of $22,000, and an increase in Retained Earnings of $50,000.If the 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 increase in Common Stock of $8,000 and Additional Paid-in Capital--Common of $22,000 indicates that Jutras Corporation issued $30,000 worth of common stock during the year. Since the par value of the stock is $3 and the increase in Common Stock was $8,000, the company must have issued 2,667 shares of common stock (8,000 ÷ 3). The total amount of additional paid-in capital is $22,000, which means that the company received $22,000 - $8,000 (the increase in Common Stock) = $14,000 worth of additional paid-in capital. This indicates that the shares were issued at a price higher than their par value.

The increase in Retained Earnings of $50,000 indicates the amount of net income earned by the company during the year. However, to arrive at the actual net income, we need to adjust for the dividends paid. If $10,000 worth of dividends were paid, the actual net income for the year would be $50,000 - $10,000 = $40,000.

Therefore, the actual net income for the year was $60,000 (option C), before payment of dividends.

The Statement of Stockholders' Equity for Jutras Corporation Shows an Increase