Question

Sid Summitt is the stockholder and operator of Galaxy LLC, a motivational consulting business. At the end of its accounting period, December 31, 2017, Galaxy has assets of $591,000 and liabilities of $142,000. Using the accounting equation, determine the following amounts:

a. Stockholders' equity as of December 31, 2017.
b. Stockholders' equity as of December 31, 2018, assuming that assets increased by $112,000 and liabilities increased by $34,000 during 2018.

Answer 1

a. The stockholders' equity as of December 31, 2017, is $449,000. b. The stockholders' equity as of December 31, 2018, assuming the given changes in assets and liabilities, is $527,000.

Step-by-step explanation:

a. To determine stockholders' equity as of December 31, 2017, you can use the accounting equation: Assets = Liabilities + Stockholders' Equity. Given that the assets are $591,000 and liabilities are $142,000, you can substitute these values into the equation to solve for stockholders' equity: $591,000 = $142,000 + Stockholders' Equity. Solving for Stockholders' Equity, you get Stockholders' Equity = $591,000 - $142,000 = $449,000.

b. To determine stockholders' equity as of December 31, 2018, you need to consider the changes in assets and liabilities during 2018. Given that assets increased by $112,000 and liabilities increased by $34,000, you can calculate the change in stockholders' equity by subtracting the change in liabilities from the change in assets:

Change in Stockholders' Equity = Change in Assets - Change in Liabilities = $112,000 - $34,000 = $78,000. Then, you can add the change in stockholders' equity to the stockholders' equity at the end of 2017: Stockholders' Equity as of December 31, 2018 = Stockholders' Equity as of December 31, 2017 + Change in Stockholders' Equity = $449,000 + $78,000 = $527,000.