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    GradNerd's Avatar
    GradNerd Posts: 3, Reputation: 1
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    #1

    Jun 30, 2009, 01:21 PM
    Capital Stock
    During 2009, Stephens Corporation had an increase in total assets of $70,000 and an increase in total liabilities of $90,000. Assuming that capital stock increased by $5,000 and no dividends were paid, calculate Stephens’s net income or net loss for 2009.

    Ok, I understand that you will take 90K-70K and get -$20k. However, I am unsure if capital stock adds or deducts from the net income or has no effect at all. Anyone have any ideas?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Jul 3, 2009, 03:05 AM

    Set these up exactly like your accounting equation:

    +70,000 (A) = +90,000 (L) +5000 (CS) +/-? (RE)

    Capital stock increases on the right side as it's equity, but it does not affect net income/loss at all. Capital stock is paid-in or contributed capital, which is separate from retained earnings, which is where the net income/loss goes. They are both equity (right side) but kept separate from each other.

    What number needs to go on that right side to make all that balance?
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