Question

The increase in owners' equity for a given period is equal to A. positive net cash...

The increase in owners' equity for a given period is equal to

A. positive net cash flow minus dividends.

B. net income minus dividends.

C. sales minus dividends.

D. gross profit minus distributions to shareholders.

2. A corporation has annual sales of $18 million, total assets of $4 million, a debt ratio of 40%, depreciation expense of $200,000, and a tax rate of 40%. The corporation's total stockholders' equity is equal to

  • A. $5,600,000.
  • B. $2,400,000.
  • C. $1,800,000.
  • D. $2,800,000.
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Homework Answers

Answer #1

Answer to Question 1 is “net income minus dividends”:

Owners’ equity is increased due to net income and decreased due to dividends. Therefore, increase in owners’ equity for a given period is equal to net income minus dividends.

Answer to Question 2 is “$2,400,000’:

Equity Ratio = 1 - Debt Ratio
Equity Ratio = 1 - 0.40
Equity Ratio = 0.60

Total Stockholders’ Equity = Equity Ratio * Total Assets
Total Stockholders’ Equity = 0.60 * $4,000,000
Total Stockholders’ Equity = $2,400,000

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