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Purchase equipment with cash 1000 Paid interest 200 Sold 3000 on account Collected 2200 receivable Paid...

Purchase equipment with cash 1000

Paid interest 200

Sold 3000 on account

Collected 2200 receivable

Paid dividend 15

incurred depreciation 100

What total effect will the above transactions have on net income for the year (ignore taxes)?

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Answer #1

The total effect on net income for the year on the basis of given transactions

Effect on net income = Sales on account – Interest Paid – Depreciation Expenses

= 3,000 - 200 – 100

= 2,700

“The net income for the year would increase by 2,700 after considering the above transactions.”

-The Purchase equipment, Collection of receivables and the payment of dividend will not have any impact on the net income computation.

-The payment of dividend is only an appropriation of net income and the same shall be deducted while determining the Ending Balance of Retained Earnings to be included in the Balance Sheet

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