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  • Jan 17, 2007, 11:41 AM
    jaron
    Beginning Accounting
    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?
  • Jan 17, 2007, 04:31 PM
    CaptainForest
    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.

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