Question

Assume beginning assets of $60,000, ending assets of $80,000, a $12,000 decrease in liabilities, and ending stockholders' equity of $50,000. If dividends were twice the capital stock issuances of $20,000, how much was net income for the period?

Answer 1

Determination of net income for the period:

The basic accounting equation is,

Assets = Liabilities + Owner’s Equity

Change in liability + change in shareholders’ equity = change in assets

Change in liability = decrease in liability = $12,000 + net income

Change in shareholders’ equity = capital stock issuances – dividends paid

Dividends = twice the capital stock issuances = 2 x $20,000 = $40,000

Capital stock issuances = $20,000

Change in shareholders’ equity =$20,000 - $40,000

Change in assets = $80,000 - $60,000 = $20,000

Hence, substituting the values in the equation,

-$12,000 + net income - $40,000 +$20,000 = $80,000 - $60,000

So, net income = $20,000 +$12,000 +$40,000 - $20,000

Net Income = $52,000

Hence, net income = $52,000