Question

At the start of the year, the firm has total shareholders' equity = $5,000. If net...

At the start of the year, the firm has total shareholders' equity = $5,000. If net income during the year was a $400 loss, dividends paid = $120, and $800 was raised from the sale of new stock, what is the end of the year value for total shareholders' equity? please show your work!

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Answer #1

The net loss would be set off from retained earnings and thus shareholders' equity will reduce. Similarly, dividends will also be paid from retained earnings and in turn reduce the shareholders' equity. Sale of new stock will be added to the common stock account and will increase the shareholders' equity balance.

Ending value of shareholders' equity = Opening value - Net loss - Dividends paid + Proceeds from Sale of new stock

or, Ending value of shareholders' equity = $5000 - $400 - $120 + $800 = $5,280

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