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The Baldwin Company currently has the following balances on their balance sheet: Total Assets $159,638 Total Liabilities $72,310 Retained Earnings $76,550 Suppose next year, the Baldwin Company generates $44,200 in net profit, pays $12,000 in dividends, total assets increase by $55,000, and total liabilities remain unchanged
The Baldwin Company currently has the following balances on their balance sheet:
| Total Assets | $159,638 |
| Total Liabilities | $72,310 |
| Retained Earnings | $76,550 |
Suppose next year, the Baldwin Company generates $44,200 in net profit, pays $12,000 in dividends, total assets increase by $55,000, and total liabilities remain unchanged. What will ending Baldwin's balance in Common Stock be next year?
a) $33,578
b) $363,498
c) $178,198
d) $97,978
Expert Solution
1. Determine change in Shareholder Equity
Shareholder Equity Change = Assets change - Liabilities change
= 55,000 increase - 0
=$55,000 increase
2. Determine change in common stock
Common stock change = Shareholder Equity Change - Profit earned + Dividends declared
=55,000 - 44,200 + 12,000
=$22,800 increase
3. Determine beginning common stock
Beginning common stock = Assets - Liabilities - Retained earnings
= 159,638 - 72,310 - 76,550
=$10,778
4. Determine ending common stock
Ending common stock = 10,778 + 22,800
=$33,578
The answer is thus A.
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