Question

On January 1, Year 2, Chavez Company had beginning balances as follows: Assets = $ 12,500...

On January 1, Year 2, Chavez Company had beginning balances as follows:

Assets

=

$

12,500

Liabilities

=

$

4,500

Common Stock

=

$

3,000

During Year 2, Chavez paid dividends to its stockholders of $2,000. Given that ending retained earnings was $6,000, what was Chavez's net income for the Year 2?

A) $3,000

B) $5,000

C) $7,000

D) $2,000

Business   Accounting   
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Homework Answers

Answer #1

Answer: A) $3,000

Explanation:

Net Income Calculation for the Year 2
$ $
Assets on December 31, Year 1 12,500.00
Less:
Liabilities    4,500.00
Common Stock    3,000.00 (7,500.00)
Retained earnings on December 31, Year 1    5,000.00
Retained earnings on December 31, Year 2    6,000.00
(Given)
Increase in Retained earnings (6,000-5,000)    1,000.00
Dividends to its stockholders in Year 2    2,000.00
Net Income for the Year 2    3,000.00
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