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Week 3 Tutorial Questions Solutions

Week 3 Tutorial Questions Solutions - ACCT1501 2011S1 Week...

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ACCT1501 2011S1 Week 3 Tutorial Questions Solutions Tutorial Questions: DQ 2.10, Class Exercise, Problems 2.7, 2.22, 2.27 Discussion Question 10 Your explanations will have been in your own words, perhaps something like the following: a Net profit is part of shareholder’s equity because the increase in resources earned as mentioned above belongs to the owners, who may withdraw it as dividends. Until they do withdraw it, it is part of their ownership interest. b Net profit could be reported on the balance sheet by just showing that shareholders’ equity has increased since the prior period. The income statement was developed to provide an explanation of the details of the change in owner’s equity and to separate that from any dividends withdrawn by the owners during the period. c Yes, shareholders have to be kept happy. But keeping them happy involves making an income (so that their ownership income increases) and/or paying them a dividend, which is a payment to them of some of that increase. Including the dividends in the income calculation would
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