Case 15-2 Financial Statements under Various Theories of Equity (Adjusted)
Case 15-2 Financial Statements under Various Theories of Equity (Adjusted)
Drake Company reported the following for 2019:
Current assets
$87,000
Current liabilities
19,000
Revenues
450,000
Cost of goods sold
220,000
Noncurrent assets
186,000
Bonds payable (10%, issued at par)
100,000
Preferred stock, $5, $100 par
20,000
Common stock, $10 par
50,000
Paid-in capital in excess of par
48,000
Operating expenses
64,000
Retained earnings
36,000
Common stockholders received a $2 dividend during the year. The preferred stock is noncumulative and nonparticipating.
Required:
Ignoring income taxes, show net income for the year of 2019 and stockholders equity for Drake Company at December 31, 2019, which is consistent with each of the following theories of equity:
Entity theory
Proprietary theory
Residual equity theory
Explain the above differences in net income and stockholders equity by the theory.
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