during the current year, gracey manor bake shop reported an increase in assets of $32,000, an increase in…

during the current year, gracey manor bake shop reported an increase in assets of $32,000, an increase in liabilities of $26,000, net income of $8,000, and no change in common stock. what must have been the amount of dividends declared and paid during the year?\n\na. $6,000\nb. $0\nc. $8,000\nd. $2,000

during the current year, gracey manor bake shop reported an increase in assets of $32,000, an increase in liabilities of $26,000, net income of $8,000, and no change in common stock. what must have been the amount of dividends declared and paid during the year?\n\na. $6,000\nb. $0\nc. $8,000\nd. $2,000

Answer

Explanation:

Step1: Recall accounting - equation change

The accounting equation is $Assets = Liabilities+Equity$. The change in assets ($\Delta A$) is related to the change in liabilities ($\Delta L$) and the change in equity ($\Delta E$) by $\Delta A=\Delta L+\Delta E$. Given $\Delta A = 32000$, $\Delta L=26000$, we can find $\Delta E$. $\Delta E=\Delta A - \Delta L$ $\Delta E=32000 - 26000=6000$

Step2: Relate change in equity to net - income and dividends

The change in equity ($\Delta E$) is composed of net - income ($NI$) and dividends ($D$) when there is no change in common stock. The formula is $\Delta E=NI - D$. Given $NI = 8000$ and $\Delta E = 6000$, we can solve for $D$. $D=NI-\Delta E$ $D = 8000-6000 = 2000$

Answer:

D. $2,000$