On January 1, Year 2, Chavez Company had beginning balances as follows: $\begin{array}{ll}
\text { Assets } & =\$ 12,500 \
\text { Liabilities } & =\$ 4,500 \
\text { Common Stock } & =\$ 3,000
\end{array}$
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

Question

On January 1, Year 2, Chavez Company had beginning balances as follows: $\begin{array}{ll}
\text { Assets } & =\$ 12,500 \
\text { Liabilities } & =\$ 4,500 \
\text { Common Stock } & =\$ 3,000
\end{array}$
 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

Quizplus · Accepted Answer

Beginning retained earnings + Net Income - Dividends = Ending Retained Earnings
$11,000 + Net Income - $2,000 = $6,000
Net Income = $6,000 - $11,000 + $2,000
Net Income = $-3,000 + $2,000
Net Income = $1,000

Therefore, Chavez's net income for Year 2 was $1,000. However, this is not listed as an option, so the closest answer is A) $3,000.