Question

A corporation reported the following during 2009: Net income $175,250; a sale of 10,000 shares of $5 par value common stock for $8.75 per share; a purchase of treasury stock costing $24,750; a sale of treasury stock costing $15,500 for $14,695; a declaration and distribution of a $39,000 cash dividend; a declaration and distribution of a stock dividend of 5,000 shares of $5 par value common stock. What was the increase in owners' equity during 2009? A. $213,695B. $188,695C. 198,195D. $173,195

Answer 1

A. $213,695

Step-by-step explanation:

Provided information, we have

Net income for the year = $175,250

Less; Dividend paid = $39,000

Net Balance of Income for Equity = $136,250

Add: Sale of 10,000 shares @ $8.75 will be added completely to owner's equity as additional paid in capital is also part of owner's equity. = $87,500

Less: Purchase of treasury stock will decrease owner's equity with the net amount with which it is purchased = $24,750

Add: Sale of treasury stock will increase owner's equity with the sale amount = $14,695

"No effect of dividend in the form of shares as will be provided from general reserve which is already added in owner's equity and now it is part of outstanding shares which is also part of owner's equity."

Thus, net increase in owner's equity = $136,250 + $87,500 - $24,750 + $14,695 = $213,695

Therefore, correct option is

A. $213,695