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jaron · Jan 17, 2007, 11:41 AM

I am having a problem with the following type of problem
The given information is

Beg. Year
Assets & liabilities are given

Ending yr
Assets & liabilities are given

Revenue given
Expenses given
Dividends given

The question is to solve for the capital stock issued during the year?

How is this type of problem solved?

CaptainForest · Jan 17, 2007, 04:31 PM

Assets = Liabilities + Owner's Equity

Following that basic equation you will arrive at your answer.

EXAMPLE:
Beg assets and liabs – 10,000 and 5,000
End assets and liabs – 12,000 and 4,000

Revenues 9,000
Expenses 6,000
Dividends 1,000

So, what do we know from the above information?

During the years, assets rose by 2,000 and liabilities decreased by 1,000

There was also a Net Income of 3,000 and Dividends paid of 1,000

We also know that Owner's Equity HAD to be 5,000 (10,000-5,000) at the beg of the year and 8,000 (12,000 – 4,000) at the end of the year.

Therefore…

We must reconcile Equity.

Beg 5,000
Net Income + 3,000
Less Dividend – 1,000

End 8,000

From the above, 5,000 + 3,000 – 1,000 = 7,000. But we know the end must be 8,000

Therefore, we issued 1,000 in capital stock.