Question

the yoakam company started operations this year and reported the following information at the end of the year (i.e. ending balances): equipment $9,800 notes payable 12,600 inventory 5,600 maintenance expense 450 common stock ? revenue 14,300 cash 4,200 cost of goods sold 8,900 what amount of common stock would the company report in its financial statements?

Answer 1

determine the amount of common stock that the Yoakam Company would report in its financial statements, you would need to calculate the company's retained earnings at the end of the year. Retained earnings is calculated by taking the beginning retained earnings, adding net income (or subtracting net loss), and then subtracting any dividends paid out during the year. Since the company started operations this year, the beginning retained earnings would be zero.

To calculate net income, you can use the following formula:

Revenue - Cost of goods sold - Expenses = Net Income

Plugging in the numbers provided:

14,300 - 8,900 - 450 = 4,950

Retained Earnings = Beginning Retained Earnings + Net Income - Dividends

Retained Earnings = 0 + 4,950 - 0

Retained Earnings = 4,950

To find out the Common Stock, you have to use the equation of Basic Accounting equation:

Assets = Liabilities + Stockholder's Equity

Plugging in the numbers provided:

9,800+5,600+4,200 = 12,600 + Stockholder's Equity

Stockholder's Equity = Assets - Liabilities

Stockholder's Equity = 9,800+5,600+4,200 - 12,600

Stockholder's Equity = 7,800

And Common Stock is part of Stockholder's Equity, so Common Stock = 7,800