APPLYING THE CONCEPTS: Putting it all together Let’s put all the pieces together
ID: 2329328 • Letter: A
Question
APPLYING THE CONCEPTS: Putting it all together
Let’s put all the pieces together now. Suppose that you are analyzing Martin Company. You know that at the beginning of the year, the assets equaled $330,000 and the liabilities equaled $181,500. During the year, assets increased by $49,500 and equity increased by $76,725. The change in equity includes all increases and decreases. Further analysis reveals that the changes in equity were caused by revenues of $230,175 and expenses totaling $115,830 during the year. Because of your understanding of the accounting equation, you realize that distributions (dividends) to the stockholders must have also occurred during the year. However, you must determine the amount for those distributions.
What is the amount of distributions made to the owner of Martin Company during the year? $
Complete the equation below with amounts for the end of the year.
Explanation / Answer
Solution:
Beginning assets = $330,000
Beginning liabilities = $181,500
Beginning Equity = $330,000 - $181,500 = $148,500
Ending assets value = $330,000 + $49,500 = $379,500
Ending equity value = $148,500 + $76,725 = $225,225
Ending liabilities = $379,500 - $225,225 = $154,275
Net income for the year = Revenue - Expenses = $230,175 - $115,830 = $114,345
Ending equity = Beginning equity + Net Income - Distribution to shareholders
$225,225 = $148,500 + $114,345 - Distribution to shareholders
Distribution to shareholders = $37,620
Assets = Liabilities + Equity $379,500.00 = $154,275.00 + $225,225.00