Question

Ashley's Accessory Shop started the year with total assets of $140,000 and total liabilities of $80,000. During the year the business recorded $220,000 in revenues, $110,000 in expenses, and dividends of $40,000. Stockholders' equity at the end of the year was

A) $120,000

B) $110,000

C) $130,000

D) $70,000

Answer 1

The stockholders' equity at the end of the year for Ashley's Accessory Shop is calculated by finding the beginning equity plus net income minus dividends paid, resulting in $130,000.

Step-by-step explanation:

To calculate the stockholders' equity at the end of the year for Ashley's Accessory Shop, we'll use the basic accounting equation:

Assets = Liabilities + Stockholders' Equity

We need to adjust the equity based on the profits earned and dividends paid during the year. The net income for the business is calculated by subtracting expenses from revenues.

Net Income = Revenues - Expenses = $220,000 - $110,000 = $110,000

The beginning stockholders' equity is Assets minus Liabilities, which is $140,000 - $80,000 = $60,000. We then add the net income and subtract dividends to determine the ending stockholders' equity.

Ending Stockholders' Equity = Beginning Stockholders' Equity + Net Income - Dividends

Ending Stockholders' Equity = $60,000 + $110,000 - $40,000 = $130,000

Therefore, the correct answer is C) $130,000.