Question

Timmy Company's comparative balance sheet at January 31, 2017, and 2016. reports the following (in millions):

Three situations about Timmy Company's issuance of stock and declaration and payment of dividends during the year ended January 31, 2017.
follow. Read the requirements.
Begin by reviewing the labels for the change in stockholders' equity and then enter the amounts for each situation. (Enter an amount in each input area. Input a "0" when there is no amount to be entered. Enter amount millions. Use a minus sign or parentheses when entering net losses or numbers to be subtracted.)
Total stockholders' equity, January 31, 2016
Add: Issuance of stock
Net income
Less: Dividends declared
Net loss
Total stockholders' equity, January 31, 2017
For each situation, use the accounting equation and the statement of retained earnings to compute the amount of Timmy's net income or net loss during the year ended January 31 2017.
1. Timmy issued $13 million of stock and declared no dividends.
2. Timmy issued no stock but declared dividends of $17 million.
3. Timmy issued $20 million of stock and declared dividends of $27 million.

Answer 1

The Accounting Equation states that;

Assets = Liabilities + Equity

Equity as at 2016 = Assets - Liabilities

= 50 - 13

= $37 million

Equity as at 2017 = Assets - Liabilities

= 77 - 18

= $59 million

1. Timmy issued $13 million of stock and declared no dividends.

The Net Income ( loss) will be the figure that gives the Statement of Equity a figure of $59 million.

Net Income = Total stockholders' equity, January 31, 2017 - Total stockholders' equity, January 31, 2016 - Issuance of stock

= 59 - 37 - 13

= $9 million

Total stockholders' equity, January 31, 2016 ................ 37

Add: Issuance of stock ......................................................... 13

Net income ......................................................................9

Less: Dividends declared......................................................0

Net loss.......................................................................................0

Total stockholders' equity, January 31, 2017...................59

2. Timmy issued no stock but declared dividends of $17 million.

Net Income (loss) = Total stockholders' equity, January 31, 2017 - Total stockholders' equity, January 31, 2016 + Dividends Declared

= 59 - 37 + 17

= $39 million

Total stockholders' equity, January 31, 2016 ................ 37

Add: Issuance of stock ......................................................... 0

Net income ......................................................................39

Less: Dividends declared......................................................(17)

Net loss.......................................................................................0

Total stockholders' equity, January 31, 2017...................59

3. Timmy issued $20 million of stock and declared dividends of $27 million.

Net Income (loss) = Total stockholders' equity, January 31, 2017 - Total stockholders' equity, January 31, 2016 + Dividends Declared - Issuance of stock

= 59 - 37 + 27 - 20

= $29 million

Total stockholders' equity, January 31, 2016 ................ 37

Add: Issuance of stock ......................................................... 20

Net income ......................................................................29

Less: Dividends declared......................................................(27)

Net loss.......................................................................................0

Total stockholders' equity, January 31, 2017...................59