Question

1 Normal 1 No Spac. Heading 1 Heading 2 Title Subtitle A select Copy Format Painter board BIUX, X' A... E... Fom Paragraph Styles Editing 16. At March 1, 2020, COBM Co. reported stockholders' equity of $175,000. During the month, COBM Co. generated revenues of $40,000, incurred expenses of $17,500, purchased a computer for $3,000 and paid dividends of $3,500. What is the amount of stockholders' equity at March 31, 2020 a. $175,000 b. $191,000 c. $194,000 d. $197,500 Type here to search I G 12:17 PM 9/11/2000 Lenovo C - x FT D 322 DE CAL 5 Pas Ins.

please solve this problem and explain step by step as to how you got the answer

Answer 1

The Stockholder's equity as on March 1, 2020 is $1,75,000

Stockholders Equity = Share capital + Reserve & Surplus

Reserve and Surplus includes Profit & Loss from Current year, Retained Earnings , Capital Reserves and Other Reserves

So, Considering above Question Profit / (Loss) will be

Profit/(Loss) = Revenue - Expense

= $40,000-$17,500

= $22,500

So,

Profit will lead to increase in Reserves & Surplus and this will lead to increment in Stockholder's Equity i.e. $1,75,000 + $22,500 = $1,97,500

On the other hand, COBM Co. Purchased a computer this will not effect Stockholder's Equity as it will be appear in Total Assets under Fixed Asset

And also company has paid dividend so this will be shown under Cash Flow from Financing Activities in Cash Flow Statement as there is an outflow of cash

So, Stockholder's Equity as on March 31,2020 will be $1,97,500