A company had the following assets and liabilities at the beginning and end of the current year:

Common stock in the amount of $15,000 was issued and dividends of $5,000 were paid during the year.What is the amount of net income for the year?
A) $44,000.
B) $34,000.
C) $24,000.
D) $54,000.

Question

A company had the following assets and liabilities at the beginning and end of the current year:

Common stock in the amount of $15,000 was issued and dividends of $5,000 were paid during the year.What is the amount of net income for the year?
A) $44,000. 
B) $34,000. 
C) $24,000. 
D) $54,000.

Quizplus · Accepted Answer

To find the net income for the year, we need to use the basic accounting equation:

Assets = Liabilities + Stockholders' Equity

At the beginning of the year, the company's total stockholders' equity was:

$70,000 (common stock) + $9,000 (retained earnings) = $79,000

At the end of the year, the company's total stockholders' equity was:

$94,000 (common stock) + $14,000 (retained earnings) = $108,000

We know that common stock was issued in the amount of $15,000 and dividends of $5,000 were paid during the year. This means that the company's net income was:

Net income = (Ending stockholders' equity - Beginning stockholders' equity) - Common stock issued + Dividends paid
Net income = ($108,000 - $79,000) - $15,000 + $5,000
Net income = $29,000 - $10,000
Net income = $19,000

Therefore, the amount of net income for the year is $19,000, which corresponds to choice B.

A Company Had the Following Assets and Liabilities at the Beginning