Question

Consider the following information related to Honor Inc.:

Common stock at the beginning of the year$8,000Common stock issued during the year$2,000Net income for the year$5,200Dividends paid during the year$3,800 Which of the following is the accurate way of reporting the common stock and retained earnings on the statement of stockholders' equity at the end of the year?

a. $11,400 is shown as common stock, and $0 is shown as retained earnings.
b. $8,000 is shown as common stock, and $5,200 is shown as retained earnings.
c. $10,000 is shown as common stock, and $5,200 is shown as retained earnings.
d. $10,000 is shown as common stock, and $1,400 is shown as retained earnings.

Answer 1

Answer:

Honor Inc.

The accurate way of reporting the common stock and retained earnings on the statement of stockholders' equity at the end of the year is:

d. $10,000 is shown as common stock, and $1,400 is shown as retained earnings.

Explanation:

a) Data and Calculations:

Common stock at the beginning of the year $8,000

Common stock issued during the year $2,000

Common stock at the ending of the year  $10,000 (8,000 + $2,000)

Net income for the year            $5,200

Dividends paid during the year$3,800

Retained Earnings                     $1,400 ($5,200 - $3,800)

b) Honor's common stock increased from $8,000 to $10,000.  The dividends paid during the year reduced the amount of the Retained Earnings.