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  3. calculate net income in each separate scenario:

Calculate Net Income in each separate scenario: Total Assets Total Liabilities ...

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Accounting

Calculate Net Income in each separate scenario:
Total Assets Total Liabilities
Beg. of year $315,000 $132,000
End of year $582,000 $255,000
Co. A No additional capital stock was issued, and no dividends were paid
Co. B No additional capital stock was issued, but dividends of $30,000 were paid out.
Co. C Capital stock of $ 45,000 was issued, but no dividends were paid.
Co. D Capital stock of $45,000 was issued, and dividends of $30,000 were paid.
Assets = Liabilities + Equity
$315,000=132,000+183,000
582,000=255,000+327,000
Increase in equity is: $144,000
The increase in equity can be attributable to two things:
a) Increase in stock
b) Increase in Retained Earnings (R/E) which is attributable to Net Income (NI) minus Dividends
Co. A---Since the increase is only attributable to an increase in R/E, that means that NI was $144,000.
Co. BSince the increase is only attributable to an increase in R/E and dividends of $30,000 were paid then the following equation is used:
Beg. R/E + NI - Dividends = Ending R/E
NI -30,000=144,000
NI = $174,000
Co. C
Co. D

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