A tabular analysis of the transactions made during August 2010 by Witten Company during its first month of operations is shown below. Each increase and decrease in stockholders' equity is explained.
Assets
=
Liabilities
+
Stockholders' Equity
Cash
+
Accounts Receivable
+
Supplies
+
Office Equipment
=
Accounts Payable
+
Common Stock
+
Retained Earnings
Rev.
-
Exp.
-
Div.
1. $20,000 $20,000 Com. Stock
2. -1,000 $5,000 $4,000
3. -750 $750
4. 4,400 $5,400 $9,800 Serv. Rev
5. -1,500 -1,500
6. -2,000 -2,000 Div.
7. -800 -800 Rent Exp.
8. 450 -450
9. -3,000 -3,000 Sal. Exp.
10. 500 -500 Util. Exp.
Determine how much stockholders' equity increased for the month.
To determine how much stockholders' equity increased for the month, we need to analyze the changes in the Stockholders' Equity column in the table.
1. The first transaction shows an increase in stockholders' equity of $20,000 due to the issuance of Common Stock.
2. In transaction 2, there is no change in stockholders' equity as the decrease of $1,000 in assets is offset by an equal decrease in liabilities ($5,000 - $4,000 = $1,000).
3. In transaction 3, there is an increase in stockholders' equity of $750 due to a decrease in liabilities.
4. Transaction 4 does not affect stockholders' equity, as there is an equal increase in assets ($4,400) and liabilities ($5,400).
5. Transaction 5 does not affect stockholders' equity, as the decrease in assets ($1,500) is offset by an equal decrease in liabilities.
6. Transaction 6 shows a decrease in stockholders' equity of $2,000 due to dividends paid out.
7. Transaction 7 does not affect stockholders' equity, as the decrease in assets ($800) is offset by an equal decrease in liabilities.
8. In transaction 8, there is no change in stockholders' equity as the decrease of $450 in assets is offset by an equal decrease in expenses.
9. Transaction 9 shows a decrease in stockholders' equity of $3,000 due to salary expenses.
10. Transaction 10 does not affect stockholders' equity, as the decrease in liabilities ($500) is offset by an equal decrease in expenses.
To calculate the total increase in stockholders' equity, we add up the increases and subtract the decreases:
Increase in Stockholders' Equity = $20,000 + $750
= $20,750
Therefore, the stockholders' equity increased by $20,750 for the month.
To determine how much stockholders' equity increased for the month, you need to analyze the changes in the Stockholders' Equity section of the transactions table.
Let's break down the changes step by step:
1. The first transaction states that there was an increase of $20,000 in Common Stock. This means that $20,000 was contributed by the owners or shareholders as initial capital.
2. In transaction 2, there was a decrease of $1,000 in Accounts Payable and an increase of $5,000 in Common Stock. This suggests that $1,000 of the company's debt was paid off, and $5,000 was added to Common Stock.
3. Transaction 3 shows a decrease of $750 in Liabilities. It does not affect the Stockholders' Equity since it only reduces the amount the company owes.
4. In transaction 4, there is a decrease of $4,400 in Expenses and an increase of $5,400 in Revenue. This indicates that the company made $5,400 in revenue, which leads to an increase in Retained Earnings.
5. Transaction 5 shows a decrease of $1,500 in Accounts Payable. It does not affect the Stockholders' Equity.
6. Transaction 6 represents a decrease of $2,000 in Dividends. Dividends are distributions of profits to shareholders, which reduce Retained Earnings and, in turn, decrease Stockholders' Equity.
7. In transaction 7, there is a decrease of $800 in Rent Expenses. It does not affect the Stockholders' Equity since it only reduces expenses.
8. Transaction 8 shows a decrease of $450 in Expenses and an equal decrease of $450 in Accounts Payable. It does not affect the Stockholders' Equity.
9. Transaction 9 represents a decrease of $3,000 in Salaries Expenses. It does not affect the Stockholders' Equity as it only reduces expenses.
10. Transaction 10 shows an increase of $500 in Accounts Payable and a decrease of $500 in Utilities Expenses. This means that $500 of the company's utility expenses were added to its liabilities.
Based on the above analysis, the total increase in Stockholders' Equity can be calculated as follows:
Increase in Stockholders' Equity = Increase in Common Stock + Increase in Retained Earnings
Increase in Common Stock = $20,000 + $5,000 = $25,000
Increase in Retained Earnings = $5,400 - $2,000 - $3,000 = $400
Total Increase in Stockholders' Equity = $25,000 + $400 = $25,400
Therefore, stockholders' equity increased by $25,400 for the month.