Question

# Question Two: A. Presented below are changes (in thousands) in the account balances of Sha Company...

Question Two:

A. Presented below are changes (in thousands) in the account balances of Sha Company during the year, except for retained earnings.

Increase                                                                     Increase                                                                           (Decrease)                                                                (Decrease)

Cash                                                   \$25,000            Accounts payable                           \$34,000

Accounts receivable (net)                  (13,000)           Bonds payable                                 (20,000)

Inventory                                             52,000            Share capital                                     72,000

Plant assets (net)                                 37,000            Share premium                                 16,000

The only entries in Retained Earnings were for net income and a dividend declaration of \$10,000.

Required:

Compute the net income for the current year.

\$ 9,000

Explanation:

Total increase in assets = 25,000 (-) 13,000 + 52,000 + 37,000

= \$ 101,000

Total increase in liabilities = 34,000 (-) 20,000 + 72,000 + 16,000

= \$ 102,000

Total increase in assets = Total increase in liabilities + Total increase in retained earnings

101,000 = 102,000 + Total increase in retained earnings

Total increase in retained earnings = \$ (1,000)

Now,

Dividend distributed is \$ 10,000

So, Net Income would have been \$ (1,000) + 10,000 = \$ 9,000

In case of any doubt, please feel free to comment.