Stockholder Investments after Net Income change, reported, following, net

cross-ied

Alpha Company reported the following financial statement information:

December 31, 2006:
Assets $70,000
Liabilities 45,000

December 31, 2007:
Assets 82,000
Liabilities 55,000

During 2007:

Stockholder investments 3,000
Net income ?
Dividends 6,000
___________________________________________________________________

Calculate Alpha’s net income for the year ended December 31, 2007 and the change in stockholders’ equity for the year ended December 31, 2007.

Net income / Change in stockholders' equity

A) ($3,000) / $2,000 increase

B) $5,000 / $2,000 increase

C) $5,000 / $2,000 decrease




The correct answer was B) $5,000 $2,000 increase


Stockholders’ equity, as of December 31, 2006, was $25,000 ($70,000 assets – $45,000 liabilities) and stockholders’ equity, as of December 31, 2007, was $27,000 ($82,000 assets – $55,000 liabilities). Stockholders’ equity increased $2,000 during 2007. Net income for 2007 was $5,000 ($27,000 ending equity + $6,000 dividends – $3,000 stockholder investments – $25,000 beginning equity).


My question is, what is "stockholder investments" and why are they subtracking it from the dividends and change in equity. Would Net Income only equal retained earnings + dividends paid out?

JPSem

remember

Equity End = Equity begin + Net Income - Dividends + Investments
27=25 +NI -6 + 3
NI = 5

27 End Equity, 25 Begin equity
so change in equity = 2

CP

Jolyn

Stockholder investments are essentially money injected into company via shares (e.g. shareholders exercising rights).

Retained earnings = Beginning RE + Net Income - Dividends Paid.

Retained earnings for the year = net income - dividends. (i.e. the earnings left after paying out dividends)