Q35770942

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Andhra University *

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ACCOUNTING

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Accounting

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Nov 24, 2024

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docx

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Uploaded by ElderCoyote1981

Q35770942 AID: 1825 | 23/03/2019 [Delimiter] [General guidance] [Section: Concepts and reason] Accounting: Accounting is a process of recording the transactions and classifying them in a specific manner. It is the process of summarizing, analyzing, and interpreting the results. It is a process of preserving the accounts. Net income : This is the income of a company which is the result of all the revenues earned and expenses incurred by the company over a specific period of time. It is the income after adjusting the profit and losses. It is also known as earnings after interest and taxes. [Section: Fundamentals] Dividends: Dividends are the divisible profits of a company that are issued to the shareholder for the portion of share he has purchased. It should be through the way of purchase in the company. They are an expense for the company. Retained earnings: The amount of cumulative earnings that are distributed in the form of dividends to the investors on the stock is termed as retained earnings. [Delimiter] [Starting Hint] Based on the information given in the question, determine the difference between the balances in retained earnings. [Delimiter] [Step 1] Determine the difference between the balances in retained earnings. Difference in balance = Balance in 2016 Balance in 2015 =$400,000 $250,000 $150,000    Therefore, the difference between the balances in retained earnings is $150,000. [Explanation] It is given that the balance of retained earnings in 2015 is $250,000. The balance in 2016 is $400,000. The difference between the balances of the retained earnings is calculated by deducting $250,000 from $400,000. Therefore, the difference between the balances in retained earnings is $150,000. [Hint for next step] Based on the information given in the question, determine the net income of Company A. [Delimiter] [Step 2] Determine the net income of Company A. Difference in balance Net income = + Balance for Payment of dividends $150,000 $75,000 $225,000          Therefore, the net income of Company A is $225,000. [Answer] Company A’s net income as of December 31, 2016 is $225,000. [Answer End] [Answer Choice: Wrong] Company A’s net income as of December 31, 2016 is -$75,000. [Answer Choice End] [Answer Choice: Wrong] Company A’s net income as of December 31, 2016 is $575,000. [Answer Choice End] [Answer Choice: Correct] Company A’s net income as of December 31, 2016 is $225,000. [Answer Choice End] [Answer Choice: Wrong] Company A’s net income as of December 31, 2016 is $150,000.

[Answer Choice End] [Explanation] It is calculated that the difference in the balance of retained earnings is $150,000. The company has paid dividends of $75,000. It is not added with the existing balance. It should be added with $150,000. Thus, $150,000 is added with $75,000. Therefore, Company A’s net income as of December 31, 2016 is $225,000. [Common mistakes] It is incorrect to deduct $75,000 from the retained earnings balance assuming it as a payment. The dividend has been paid from the retained earnings. Thus, the retained earnings should be included with $75,000.

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