Assume that a firm had shareholders' equity on the balance sheet at a book value of $1,200 at the end of 2010.During 2011 the firm earns net income of $900,pays dividends to shareholders of $400,and issues new stock to raise $250 of capital.The book value of shareholders equity at the end of 2011 is:

Question

Quizplus · Accepted Answer

Book value of shareholder's equity at the end of 2010 = $1,200
Net income earned during 2011 = $900
Dividends paid to shareholders during 2011 = $400
New stock issued to raise capital during 2011 = $250

Therefore, the book value of shareholder's equity at the end of 2011 can be calculated as follows:

Book value of shareholder's equity at the end of 2011 = Book value of shareholder's equity at the end of 2010 + Net income earned during 2011 - Dividends paid to shareholders during 2011 + New stock issued to raise capital during 2011
= $1,200 + $900 - $400 + $250
= $1,950

Hence, the best choice is D.

Assume That a Firm Had Shareholders' Equity on the Balance