Question

Presented below is certain information pertaining to Edson Company.

            Assets, January 1                                                                            $250,000

            Assets, December 31                                                                        230,000

            Liabilities, January 1                                                                          150,000

            Common stock, December 31                                                             90,000

            Retained earnings, December 31                                                       41,000

            Common stock sold during the year                                                    10,000

            Dividends declared during the year                                                     13,000

Compute the net income for the year.

Answer 1

Condition at Jan 01

Assets = Stockholders Equity + Liabilities

250,000 = Stockholders Equity + 150,000

Stockholders Equity = 250,000 - 150,000

Stockholders Equity = $ 100,000

Stockholders Equity = Common Stock + Retained Earnings

Common Stock at Jan 01 = Common Stock at Dec 31 - Common Stock sold during the Year

= 90,000 - 10,000

Common Stock at Jan 01 = $ 80,000

Stockholders Equity = Common Stock + Retained Earnings

100,000 = 80,000 + Retained Earnings

Retained Earnings = 100,000 - 80,000

Retained Earnings at Jan 01 = $ 20,000

Calculation of Net Income for the Year

Particulars	Amount
Retained Earnings Dec 31	41,000
Add: Dividend Declared	13,000
Less: Retained Earnings Jan 01	20,000
Net Income for the Year	34,000

Alternatively You can use the following formula

Net Income for the Year = Retained Earnings Dec 31 + Dividend Declared - Retained Earnings Jan 01