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15 July, 14:14

Lena Company has provided the following data for its 2019 operations (ignore income taxes):

2019 revenues were $87,000.

2019 expenses were $49,600.

Dividends declared and paid during 2019 totaled $8,700.

Total assets at December 31, 2019 were $195,000.

Total liabilities at December 31, 2019 were $125,000.

Common stock at December 31, 2019 was $37,000.

Which of the following is correct?

A) 2014 net income was $41,700.

B) Total stockholders' equity at December 31, 2014, was $236,000.

C) Retained earnings at December 31, 2014, were $60,000.

D) Retained earnings at December 31, 2014, were $41,700.

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Answers (1)
  1. 15 July, 16:03
    0
    None of the options given is right

    Explanation:

    The accounting equation shows the relationship between the elements of a balance sheet which are assets liabilities and equity. This may be expressed mathematically as

    Assets = Liabilities + Equity

    While assets include fixed assets, cash, inventories, account receivables etc, liabilities include accounts payable, loans payable, accrued expenses etc.

    Equity which represents the amount owed to the owners of the business includes retained earnings (which is the accumulation of the net income/loss over the years less dividends paid) and common shares.

    Net profit for 2019

    = $87,000 - $49,600

    = $37,400

    Total equity at December 31, 2019

    = $195,000 - $125,000

    = $70,000

    Total Retained earnings December 31, 2019

    = $70,000 - $37,000

    = $33,000

    Retained earnings at 31 December 2018

    = $33,000 - ($37,400 - $8,700)

    = $33,000 - $28,700

    = $4,300
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