P3–8 Effect of net income on a firm’s balance sheet Conrad Air, Inc., reported net income of $1,365,000 for the year ended December 31, 2016. Show how Conrad’s balance sheet would change from 2015 to 2016 depending on how Conrad “spent” those earnings as described in the scenarios that appear below.

a. Conrad paid no dividends during the year and invested the funds in marketable securities.

b. Conrad paid dividends totaling $500,000 and used the balance of the net income to retire (pay off) long-term debt.

c. Conrad paid dividends totaling $500,000 and invested the balance of the net income in building a new hangar.

d. Conrad paid out all $1,365,000 as dividends to its stockholders.

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Assets Conrad Air, Inc., Balance Sheet as of December 31, 2015 Liabilities and Stockholders' Equity Cash $ 120,000 Accounts payable $ 170,000 Marketable securities Accounts receivable Inventories 35,000 Short-term notes $ 55,000 45,000 Current liabilities $ 125,000 $ 130,000 Long-term debt Current assets $ 330,000 Total liabilities $2,700,000 $2,825,000 Equipment $2,970,000 Common stock $ 500,000 Buildings $1,600,000 Retained earnings $1,575,000 Fixed assets $4,570,000 Stockholders' equity $2,075,000 Total assets $4,900,000 Total liabilities and equity $4,900,000