Effect of net income on a firm’s balance sheet Barn Plc. reported net income of £2,650,000 for the year ended December 31, 2020, and the company paid out all earnings as dividends. Indicate how Barn’s 2020 balance sheet would look different if the company had “spent” its earnings in the ways described below rather than paying them as dividends.

a. Barn PLC paid no dividend during the year and invested the funds in marketable securities.

b. Barn paid dividends totaling £600,000 and used the balance of the net income to pay off long-term debt.

c. Barn paid dividends totaling £600,000 and invested the balance of the net income in a new factory building.

Transcribed Image Text:

Assets Cash Marketable securities Accounts receivable Inventories Current assets Equipment Buildings Barn Plc. Balance Sheet as of December 31, 2020 Fixed assets Total assets 240,000 70,000 90,000 260,000 660,000 5,940,000 3,200,000 9,140,000 9,800,000 Liabilities and Stockholders' Equity Accounts payable Short-term notes Current liabilities Long-term debt Total liabilities Ordinary share capital Retained earnings Total equity Total liabilities and equity 140,000 110,000 250,000 5,400,000 5,650,000 1,000,000 3,150,000 4,150,000 9,800,000