The right side of the balance sheet shows the firm\'s liabilities and stockholde

Question

The right side of the balance sheet shows the firm's liabilities and stockholders' equity Which of the following best describes shareholders' equity? O Equity is the difference between the company's assets and retained earnings. O Equity is the sum of shareholders' capital provided by shareholders and retained earnings NOW Inc. released its annual results and financial statements. Grace is reading the summary in the business pages of today's paper. In its annual report this year, NOW Inc. reported a net income of $168 million. Last year, the company reported a retained earnings balance of $493 million, whereas this year it increased to $580 million. How much was paid out in dividends this year? $81 million O $410 million $255 llion $3 million

Explanation / Answer

1. Equity is the sum of shareholder's capital provided by shareholder's and retained earnings.

Retained earnings belongs to the owners (shareholders) of the business. That is why retained earnings is included in the equity.

2. Calculation of dividends paid

Therefore, dividends paid during the current year = $81 million

Amount Beginnig retained earnings balance for the current year $493 million Add: Net income of the current year $168 million Amount available for dividends to shareholder's $661 million Less: Ending retained balance after dividend payment $580 million Dividends paid during the year $81 million

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