[smokedetector]

I have a problem in my homework that I cannot for the life of me figure out. It gives me the beginning and end of the year liabilities and assets and gives me four different situations and I have to determine the net income or loss. My question is, if it gives me both values for assets and liabilities for both the beginning and end of the year, then stockholders equity can't change, right? Because SE=A-L, if it gives me A and L, then SE is necessarily only one number. It gives me scenarios such as "stockholders made no investment and no dividends were paid," "stockholders made no investment but dividends of 27,500 were paid," "stockholders invested 16,250 but no dividends were paid," and "stockholders invested 12,500 and dividends of 27,500 were paid." Stockholders investments I assume show up under the revenue part of income statement and affect the net income which directly transfers over to the statement of retained earnings. Dividends show up on statements of retained earnings and it and the net income are one of three factors of end retained earnings which then transfer to stockholders equity in the balance sheet, and since SE can't change as proven above, then either everything else can't change or everything that does change has to equal out before the end retained earnings are transferred to stockholders equity in the balance sheet, right? I realize this might be really confusing (obviously), so the actual problem says this:

Assets Liabilities
Beginning of year 175,000 68,750
End of year 275,000 162,500

determine the net income or loss for the year under each of the following alternatives:
1) stockholders made no investment and no dividends were paid
2) stockholders made no investment but dividends of 27,500 were paid
3) stockholders invested 16,250 but no dividends were paid
4) stockholders invested 12,500 and dividends of 27,500 were paid."

[morgaine300]

My question is, if it gives me both values for assets and liabilities for both the beginning and end of the year, then stockholders equity can't change, right? Because SE=A-L, if it gives me A and L, then SE is necessarily only one number.

It has to be a set number at any given point in time. (i.e. a "forced" number.) But yes it can change over time. It has to be a set number at the beginning of the year, and a set number at the end of the year. But it can (and will) still change from beginning to end of the year. Which, basically, is the entire point of the problem, to look at the change in the stockholder's equity.

Stockholders investments I assume show up under the revenue part of income statement and affect the net income which directly transfers over to the statement of retained earnings.

Incorrect. An investment by a stockholder is not revenue. Revenue is something the corporation earns by doing work or selling, or whatever it is that they do. If you bought stock in a company, you have bought a piece of ownership in that company. You haven't given them earnings. They didn't earn anything by you putting a piece of ownership in.

Because initial investments and retained earnings are kept separated, this also will not be on the statement of retained earnings. (It will, however, be on the statement of stockholder's equity.)

Dividends show up on statements of retained earnings and it and the net income are one of three factors of end retained earnings which then transfer to stockholders equity in the balance sheet,

This part is true. The three things affecting retained earnings are revenues, expenses (i.e. net income) and dividends. And retained earnings is part of the stockholder equity. So dividends will affect total SE, yes.

and since SE can't change as proven above, then either everything else can't change or everything that does change has to equal out before the end retained earnings are transferred to stockholders equity in the balance sheet, right?

I have no idea what you just said there. :) But you haven't proven that SE can't change, and since it can, there's no way for you to prove that.

Now that we've straightened all that out, stockholder's equity essentially consists of two main parts: stock and retained earnings. Only investments go into stock. Net income (consisting of revenues & expenses) and dividends affect retaining earnings.

Since the problem is not making this separation, you are working only with the total of SE. It's not asking where which thing is going. You only need to deal with the fact that investments, income/loss and dividends will affect total SE. Basically, you are making it more complicated. You will eventually need to know all that detail, but for this problem, it's much simpler than all that. (I have a feeling you're a person who over-thinks things.)

Figure out the beginning and ending balances of stockholder's equity. You already know how to do that. The easiest way to proceed from there is to set up something like this:

Beginning Balance
+Investments
Sub-Total
- Dividends
Sub-Total
+Net Income (or - Net Loss)
= Ending Balance

Because of the lack of separation in the problem between stock and RE, there isn't any need to worry about it. We're working with the total.

Insert what you know. You can actually use this to find any missing number, but each one is asking for the net income/loss number. So in the end, you only need to find out what number in purple will get you from the last sub-total to the ending balance that you've already figured out.