Question

Suppose next year the Baldwin Company generates $44,200 in net profit, pays $12,000 in dividends, total assets increase by $55,000, and total liabilities remain unchanged. What will ending Baldwins balance in Common Stock be next year?

Answer 1

The ending balance of common stock during next year is $77,477.

Step-by-step explanation:

• Determine the addition to retained earnings.

Addition to retained earnings =Netincome−Dividends

=$44,200−$12,000

=$32,200

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Therefore, the addition to retained earnings is $32,200.

It is given that the net income is $44,200. The dividend is $12,000. After settling the dividends, the net income is added to the retained earnings. Thus, $12,000 is deducted from $44,200. Therefore, the addition to retained earnings is $32,200.

• Determine the ending balance of common stock during the next year.

Ending balance of commonstock= Total assets−Total liabilities

−Ending retained earnings

=($230,435+$55,000−$141,660−$66,328)

=$285,435−$141,660−$66,328

=$77,477

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Therefore, the ending balance of common stock during the next year is $77,477.

Working notes:

Determine the beginning balance of common stock:

Commonstock= Total assets − Tota liabilities −Retainedearnings

=$230,435−$141,660−$34,128

=$54,647

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Therefore, the beginning balance of common stock is $54,647.

Calculate the ending retained earnings:

Ending retained earnings =Retained earnings + Addition to retained earnings

=$34,128+$32,200

=$66,328

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Therefore, the ending retained earnings are $66,328.

The ending balance of common stock during next year is $77,477.