In its annual report to shareholders, Belle Company reported that its shareholde
ID: 2463368 • Letter: I
Question
In its annual report to shareholders, Belle Company reported that its shareholders’ equity decreased from $58 million as of the beginning of the year to $28 million at year-end. Which of the following is a likely cause of this change in shareholders’ equity?
A. The company’s assets increased during the year.
B. The company had an operating loss during the year.
C. The company distributed less dividends than it earned in profit during the year.
D. The company’s liabilities decreased during the year.
Explanation / Answer
B. The company had an operating loss during the year. Since Profit are added back to shareholders equity an losses are deducted from Shareholders Equity. thus Company must have suffered loss thats why its shareholder Equity decreased during the year.