Sandhill’s shareholders’ equity consists only of common shares and retained earnings. Using the change in total shareholders’ equity calculated in above part, (50000) calculate the net income or loss for the year ended December 31, 2018, assuming each of the following independent scenarios:
1. Sandhill issued no common shares during the year and did not declare any dividends.
Net income or loss
$
2. Sandhill issued no common shares during the year and declared and paid dividends of $11,000.
Net income or loss
$
3. Sandhill issued $35,000 of additional common shares during the year and did not declare any dividends.
Net income or loss
$
4. Sandhill issued $20,000 of additional common shares during the year and declared and paid dividends of $11,000.
Net income or loss
$
My answers:
1. 50000
2.30000
3. 85000
4. 59000
I am fairly new to accounting so please help if I am wrong
To determine the net income or loss for each scenario, we need to understand the components that affect shareholders' equity. Shareholders' equity is composed of common shares and retained earnings.
1. In this scenario, Sandhill issued no common shares and did not declare any dividends. The change in total shareholders' equity is given as (50000). Since there are no additional common shares issued and no dividends paid, the change in shareholders' equity should be equal to the net income or loss for the year. Therefore, the net income or loss would be: -$50,000.
2. Sandhill issued no common shares during the year and declared and paid dividends of $11,000. The change in total shareholders' equity is given as (50000). Since there are no additional common shares issued, the change in shareholders' equity should be equal to the net income or loss plus dividends. Therefore, the net income or loss would be: -$61,000 (-$50,000 - $11,000).
3. Sandhill issued $35,000 of additional common shares during the year and did not declare any dividends. The change in total shareholders' equity is given as (50000). Since there are additional common shares issued, the increase in common shares should be subtracted from the change in shareholders' equity to determine the net income or loss. Therefore, the net income or loss would be: -$15,000 (-$50,000 - $35,000).
4. Sandhill issued $20,000 of additional common shares during the year and declared and paid dividends of $11,000. The change in total shareholders' equity is given as (50000). Since there are additional common shares issued, the increase in common shares should be subtracted from the change in shareholders' equity. Additionally, the dividends paid should also be subtracted from the change in shareholders' equity to determine the net income or loss. Therefore, the net income or loss would be: -$46,000 (-$50,000 - $20,000 - $11,000).
Please note that these calculations are based on the information provided, and there could be other factors not mentioned that may affect the net income or loss.