Question

For the year ended December 31, 2020, Transformers Inc. reported the following:

Net income $300,000
Preferred dividends declared 50,000
Common dividend declared 10,000
Unrealized holding loss, net of tax 5,000
Retained earnings, beginning balance 400,000
Common stock 200,000
Accumulated Other Comprehensive Income,
Beginning Balance 25,000
What would Transformers report as total stockholders' equity?
a. $860,000
b. $840,000
c. $640,000
d. $600,000

Answer 1

To calculate total stockholders' equity, add net income, subtract dividends, and consider changes in retained earnings, common stock, and accumulated other comprehensive income.

Step-by-step explanation:

To calculate the total stockholders' equity, we need to consider the changes in the retained earnings, common stock, preferred dividends, and accumulated other comprehensive income. Starting with the beginning retained earnings of $400,000, we add the net income of $300,000 and subtract the common dividend of $10,000 and preferred dividends of $50,000. This gives us an ending retained earnings of $640,000.

Next, we add the common stock of $200,000 and subtract the accumulated other comprehensive income of $5,000 to get the total stockholders' equity, which is $835,000.