Calculate ending equity using the accounting equation

Steps:

• Start with beginning total equity from the balance sheet.
• Add net income for the year to reflect earnings retained.
• Subtract dividends paid to shareholders.
• Verify by subtracting total liabilities from total assets to confirm equity balance.

Why C is correct:

• $450,000 matches the formula: Beginning equity ($400,000) + Net income (50,000) = $450,000, per the basic accounting equation (Assets = Liabilities + Equity).

Why the others are wrong:

• A ignores dividends, overstating equity at $500,000.
• B subtracts net income instead of adding, understating equity.
• D adds dividends, incorrectly increasing equity beyond earnings.

Final answer: C