Disclaimer: I don't own the Hobbit or Dwalin or anyone else here, I'm just trying to make a good story here.
Test of a Dwarf's Bravery
Dwalin saw that the Goblin standing before him was almost as large as he was, but that would not stop him from winning this fight.
It was the Battle of Five Armies, and the Goblins and Wargs were now upon his own people, as well as the Lake-men and the Wood-elves. And he was determined to prove himself as Thorin's finest and bravest warrior companion. He and the Goblin faced off against each other, his big enemy swiping at him with a scimitar savagely, until Dwalin, after blocking a scimitar strike with the shaft of his own weapon, brought down his battle hammer on the beastly thing.
It continued on like that for a long time, Dwalin killing Goblin after Goblin; sometimes the Wargs would face him, too, but he was also ready for them, hammering away at their growling heads and strong chests, felling even more Goblins. Then, he noticed that his great leader, Thorin Oakenshield himself, had been felled by his foes, and that those same foes had just slain Fíli and Kíli, too, who had been defending him. Dwalin yelled and charged, ready to defend his wounded leader to the end, though he had been greatly touched by the courage and loyalty Fíli and Kíli had shown for him.
The fight was long and hard, and soon Bolg, who was the leader of the Goblins and the son of the accursed Azog, was approaching with his bodyguard, and they set upon Dwalin. Dwalin received an arm wound from a dagger (fortunately it wasn't poisoned), and he was flung to the ground near Thorin. Bolg stepped forward and prepared to kill the valiant Dwarf, but then, Beorn, in the form of a bear, charged the Goblin horde with a roar that frightened the wits out of them. Beorn scattered the bodyguard, and then grabbed Bolg and killed him with a squeeze of his paw. Dwalin got to his feet and nodded at Beorn, who nodded back, understanding Dwalin's gratitude, and the bear-man reached down and carefully picked up Thorin and carried him to safety while Dwalin went on to slay many more Goblins till the very end of the battle.
Later, after the battle, and after Thorin had died of his wounds and Bilbo the Hobbit wept over it, Dwalin wept, too, beside his brother Balin, and tore his beard as a sign of Dwarven grief.
"I hope Thorin knew how well Fíli, Kíli, and I fought to protect him before he passed away," he said in tears. "I always wanted him to be proud of me!"
"I think he was," Balin reassured him, "He was conscious enough to witness your heroism, and that of his nephews. He sends his posthumous condolences to their mother Dís back at the Blue Mountains."
"And me?" asked Dwalin, "Did he say anything about me, too?"
"Yes," said Balin, "He saw you fight, also, and just before Bilbo arrived to say farewell to him, he said that you fought better than ten Wood-elf warriors, or twenty Lake-men soldiers."
And with that, Dwalin, son of Fundin, decided that he truly was a Dwarf who deserved the rewards of the Lonely Mountain, and he, normally a grim Dwarf, smiled happily.