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Chapter 1: Q23E (page 38)

During 2018, Flowing Rivers Spa reported revenue of \(30,000. Total expenses for the year were \)15,000. Flowing Rivers Spa ended the year with total assets of \(43,000, and it owed debts totaling \)14,000. At year-end 2017, the business reported total assets of \(28,000 and total liabilities of \)14,000. Requirements 1. Compute Flowing Rivers Spa’s net income for 2018. 2. Did Flowing Rivers Spa’s stockholders’ equity increase or decrease during 2018? By how much?

Short Answer

Expert verified

(1) Net income equals $15,000.

(2) Increase in stockholders’ equity by $15,000.

Step by step solution

01

Step-by-Step-SolutionStep 1: Calculation of net income

Net income is calculated as follows:

NetIncome=Revenues−Expenses=$30,000−$15,000=$15,000

02

Calculation of Total Stockholders’ Equity for 2018

Total Stockholders’ equity for 2018 End is calculated as follows:

TotalStockholders'Equity​2018=Assets−Liabilities=$43,000−$14,000=$29,000

03

Calculation of Total Stockholders’ Equity for 2017

Total Stockholders’ equity for 2018 End is calculated as follows:

TotalStockholders'Equity​2017=Assets−Liabilities=$28,000−$14,000=$14,000

04

Calculation of increase in stockholders’ equity

Incease in stockholders’ equity is calculated as follows:
InreaseinStockholders'Equity=TotalStockholders'Equity​2018−TotalStockholders'Equity​2017=$29,000−$14,000=$15,000Thus,netincomeis$15,00andstockholders’equityincreaseby$15,000.

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Most popular questions from this chapter

Let’s examine a case using Greg’s Tunes and Sal’s Silly Songs. It is now the end of the first year of operations, and the stockholders want to know how well each business came out at the end of the year. Neither business kept complete accounting records, and no dividends were paid. The businesses throw together the data shown on the next page at year-end: \( 23,000 8,000 35,000 22,000 \) 10,000 6,000 44,000 9,000 Total Assets Common Stock Total Revenues Total Expenses Greg’s Tunes: Sal’s Silly Songs: Total Liabilities Common Stock Total Expenses Net Income To gain information for evaluating the businesses, the stockholders ask you several questions. For each answer, you must show your work to convince the stockholders that you know what you are talking about. Requirements 4. Which business brought in more revenue?

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