As of the end of its accounting period, December 31, Year 1, Great Plains Company has assets of $940,000 and liabilities of $300,000. During Year 2, stockholders invested an additional $73,000 and received $33,000 in dividends from the business. What is the amount of net income during Year 2, assuming that as of December 31, Year 2, assets were $995,000 and liabilities were $270,000?
A) $45,000
B) $50,000
C) $106,000
D) $370,000

Question

Quizplus · Accepted Answer

Assets = Liabilities + Stockholders' Equity
Stockholders' Equity (Year 1) = $940,000 - $300,000 = $640,000
Stockholders' Equity (Year 2) = $995,000 - $270,000 = $725,000
 Increase in stockholders' equity = Stockholders' equity (Year 2) - Stockholders' equity (Year 1) = $725,000 - $640,000 = $85,000
Net income during Year 2 = Increase in stockholders' equity - Additional investment + Cash dividends
= $85,000 - $73,000 + $33,000 = $45,000

As of the End of Its Accounting Period, December 31