Consider the following information related to Honor Inc.: Common stock at the beginning of the year$8,000Common stock issued during the year$2,000Net income for the year$5,200Dividends paid during the year$3,800 Which of the following is the accurate way of reporting the common stock and retained earnings on the statement of stockholders' equity at the end of the year?

a. $11,400 is shown as common stock, and $0 is shown as retained earnings.
b. $8,000 is shown as common stock, and $5,200 is shown as retained earnings.
c. $10,000 is shown as common stock, and $5,200 is shown as retained earnings.
d. $10,000 is shown as common stock, and $1,400 is shown as retained earnings.

Honor Inc.

The accurate way of reporting the common stock and retained earnings on the statement of stockholders' equity at the end of the year is:

d. $10,000 is shown as common stock, and $1,400 is shown as retained earnings.

Explanation:

a) Data and Calculations:

Common stock at the beginning of the year $8,000

Common stock issued during the year $2,000

Common stock at the ending of the year  $10,000 (8,000 + $2,000)

Net income for the year            $5,200

Dividends paid during the year$3,800

Retained Earnings                     $1,400 ($5,200 - $3,800)

b) Honor's common stock increased from $8,000 to $10,000.  The dividends paid during the year reduced the amount of the Retained Earnings.

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