Asked by Charles Johnson on May 10, 2024
Verified
Grass Enterprises just closed a good year. It had Sales of $10 million, EBIT of $1 million and Net Income of $500,000. The firm also paid dividends of $150,000 during the year. If Grass started the year with equity of $900,000, what will its year ending equity be?
A) $1,900,000
B) $1,400,000
C) $1,250,000
D) $850,000
Dividends
Payments made by a corporation to its shareholder members from the company's earnings.
Equity
The value of an owner's interest in a property or business, after all debts associated with that property or business are paid off.
EBIT
EBIT, which stands for Earnings Before Interest and Taxes, calculates a company's earnings without considering income tax and interest expenses.
- Understand the relationship between sales, EBIT, net income, dividends, and equity changes.
Verified Answer
RH
Roger HindrichMay 13, 2024
Final Answer :
C
Explanation :
Year ending equity can be calculated using the formula:
Year-ending equity = Beginning equity + Net income - Dividends
Year-ending equity = $900,000 + $500,000 - $150,000 = $1,250,000
Therefore, the answer is choice C.
Year-ending equity = Beginning equity + Net income - Dividends
Year-ending equity = $900,000 + $500,000 - $150,000 = $1,250,000
Therefore, the answer is choice C.
Learning Objectives
- Understand the relationship between sales, EBIT, net income, dividends, and equity changes.