Question

B&B Hospitals reported the following amounts on its balance sheet for Year 1 and Year 2:...

  1. B&B Hospitals reported the following amounts on its balance sheet for Year 1 and Year 2:

Year End

Assets

Liabilities

Shareholders' Equity

(Net Assets)

Year 1

$100,000

$35,000

$65,000

Year 2

    108,000

28,000

80,000

No dividends were declared and no additional investments of capital were made at B&B during Year 2. What is the company’s net income for Year 2?

  1. $15,000
  2. $25,000
  3. $43,000
  4. Not enough information is provided to determine the answer
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Answer #1

Increase in Total stockholder's Equity is either due to issue of common stock or due to net income transferred to retained earnings.

Increase in Total stockholder's Equity from year 1 to Year 2 = $80,000 - $65,000

Increase in Total stockholder's Equity from year 1 to Year 2 = $15,000

Since there is no additional investments, and no dividends declared during the year, Entire Increase in Total stockholder's Equity to be treated as due to Net income during the period.

So, Company's Net Income for Year 2 = $15,000.

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