Question

Jamal Company began the year with $64,000 in its Common Stock account and a debit balance in Retained Earnings of $36,000. During the year, the company earned net income of $18,000 and declared and paid $6,000 of dividends. In addition, the company sold additional common stock amounting to $22,000. Based on this information, how will the transaction analysis affect the ending total of all stockholders' equity accounts?

Answer 1

The ending total of all stockholders' equity accounts will be: Retained Earnings $48,000 and Common Stock $86,000.

Step-by-step explanation:

The transaction analysis in this question will affect the ending total of all stockholders' equity accounts as follows:

1. The net income of $18,000 will increase the Retained Earnings account. Retained Earnings at the beginning of the year was $36,000, so it will now be $36,000 + $18,000 = $54,000.
2. The dividends paid of $6,000 will reduce the Retained Earnings account. So the new balance for Retained Earnings will be $54,000 - $6,000 = $48,000.
3. The sale of additional common stock for $22,000 will increase the Common Stock account. So the new balance for Common Stock will be $64,000 + $22,000 = $86,000.

To summarize, the ending total of all stockholders' equity accounts will be: Retained Earnings $48,000 and Common Stock $86,000.