Question

Carlos Ramirez and Camila Garza organized New World Book Store as a corporation; each contributed $71,800 cash to start the business and received 4,500 shares of common stock. The store completed its first year of operations on December 31, current year. On that date, the following financial items for the year were determined: December 31, current year, cash on hand and in the bank, $69,650; December 31, current year, amounts due from customers from sales of books, $42,500; unused portion of store and office equipment, $72,500; December 31, current year, amounts owed to publishers for books purchased, $13,500; one-year note payable to a local bank for $3,500, with interest due of $210. No dividends were declared or paid to the stockholders during the year.

What was the amount of net income for the year? (Hint: Use the retained earnings equation [Beginning Retained Earnings + Net Income − Dividends = Ending Retained Earnings] to solve for net income.)

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Answer 1

ASSETS:
Cash on hand and bank	69650
Accounts receivable	42500
Store and office equipment	72500
Total assets	184650
LIABILITIES AND EQUITY:
Accounts payable	13500
Note payable (including accrued interest)	3710
Common stock (71800*2)	143600
Retained earnings	23840
Total liabilities and equity	184650
As it is the first year and no dividends have been paid
the ending retained earnings balance is the Net income
for the year.
Answer: Net Income for the year = $23,840