Fat Possum's Service Shop started the year with total assets of $330,000 and total liabilities of $2400,000. During the year, the business recorded $630,000 in revenues, $420,000 in expenses, and paid dividends of $60,000. The net income reported by Fat Possum's Service Shop for the year was
A) $150,000.
B) $210,000.
C) $240,000.
D) $270,000.

Question

Quizplus · Accepted Answer

Net Income can be calculated as Revenues - Expenses - Dividends.

Therefore, Net Income = $630,000 - $420,000 - $60,000 = $150,000

However, to find the total assets of the business at the end of the year, we need to add the Net Income to the beginning Total Assets:

Total Assets at the end of the year = Beginning Total Assets + Net Income
Total Assets at the end of the year = $330,000 + $150,000 = $480,000

Now, we can use the accounting equation to find the total liabilities at the end of the year:

Total Liabilities at the end of the year = Total Assets at the end of the year - Equity

Total Liabilities at the end of the year = $480,000 - ($240,000 + $150,000) = $90,000

Therefore, the net income reported by Fat Possum's Service Shop for the year was $150,000.

Fat Possum's Service Shop Started the Year with Total Assets