Question

York Casting Services started the year with total assets of $130,000 and total liabilities of $40,000. The revenues and the expenses for the year amounted to $140,000 and $$60,000​, respectively. During the​ year, the company did not issue any common​ stock, but it distributed dividends of $55,000.

Calculate the amount of increase or decrease in​ stockholders' equity for the year.

A. a $25,000 increase
B. a $115,000 increase
C. a $55,000 increase
D. a $90,000 decrease

Answer 1

The amount of increase or decrease in stockholders' equity for the year is $25,000 increase.

Step-by-step explanation:

The amount of increase or decrease in stockholders' equity for the year can be calculated using the basic accounting equation:

Assets = Liabilities + Stockholders' Equity

At the beginning of the year, York Casting Services had total assets of $130,000 and total liabilities of $40,000. Therefore, the stockholders' equity was $90,000 ($130,000 - $40,000).

Throughout the year, the company generated revenues of $140,000 and incurred expenses of $60,000. These values affect the income statement, not the balance sheet. The net income (revenues - expenses) is $80,000.

The company also distributed dividends of $55,000. Dividends decrease the stockholders' equity since the money is paid out to shareholders. Therefore, the change in stockholders' equity is calculated as:

Change in Stockholders' Equity = Net Income - Dividends

Change in Stockholders' Equity = $80,000 - $55,000 = $25,000

Therefore, the amount of increase or decrease in stockholders' equity for the year is a $25,000 increase. Option A is correct.