Effect of net income on a firm’s balance sheet Conrad Air Inc. reported net income of...

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Finance

Effect of net income on a firm’s balance sheet Conrad Air Inc.reported net income of $1,365,000 for the year ended December 31,2020. Show how Conrad’s balance sheet would change from 2019 to2020 depending on how Conrad “spent” those earnings as described inthe scenarios that appear below.
Conrad Air Inc. Balance Sheet as of December 31, 2019
Assets Cash
Marketable securities Accounts receivable Inventories
Current assets
Equipment Buildings
Fixed assets Total assets
$ 120,000 35,000 45,000
$ 130,000 $ 330,000 $2,970,000 1,600,000 $4,570,000$4,900,000
Liabilities and Stockholders’ Equity Accounts payable
Short-term notes Current liabilities Long-term debt Totalliabilities
Common stock Retained earnings
Stockholders’ equity Total liabilities and equity
$ 70,000 55,000
$ 125,000 2,700,000 $2,825,000 $ 500,000 1,575,000 $2,075,000$4,900,000
a. Conrad paid no dividends during the year and invested the fundsin marketable securities.
b. Conrad paid dividends totaling $500,000 and used the balance ofthe net income to retire (pay off) long-term debt.
c. Conrad paid dividends totaling $500,000 and invested the balanceof the net income in building a new hangar.
d. Conrad paid out all $1,365,000 as dividends to itsstockholders.

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3.7 Ratings (552 Votes)

Answer a If Conrad paid no dividends during the year and invested the funds in marketable securities the amount transferred to the balance sheet will be 1365000 The ending marketable securities will be 1400000 The ending retained earnings will be 2940000 Working See Answer

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Effect of net income on a firm’s balance sheet Conrad Air Inc.reported net income of $1,365,000 for the year ended December 31,2020. Show how Conrad’s balance sheet would change from 2019 to2020 depending on how Conrad “spent” those earnings as described inthe scenarios that appear below.Conrad Air Inc. Balance Sheet as of December 31, 2019Assets CashMarketable securities Accounts receivable InventoriesCurrent assetsEquipment BuildingsFixed assets Total assets$ 120,000 35,000 45,000$ 130,000 $ 330,000 $2,970,000 1,600,000 $4,570,000$4,900,000Liabilities and Stockholders’ Equity Accounts payableShort-term notes Current liabilities Long-term debt TotalliabilitiesCommon stock Retained earningsStockholders’ equity Total liabilities and equity$ 70,000 55,000$ 125,000 2,700,000 $2,825,000 $ 500,000 1,575,000 $2,075,000$4,900,000a. Conrad paid no dividends during the year and invested the fundsin marketable securities.b. Conrad paid dividends totaling $500,000 and used the balance ofthe net income to retire (pay off) long-term debt.c. Conrad paid dividends totaling $500,000 and invested the balanceof the net income in building a new hangar.d. Conrad paid out all $1,365,000 as dividends to itsstockholders.