Allen Marks is the sole stockholder of Great Marks Company. As at December 31, 2013, Great Marks Company has assets of $940,000 and liabilities of $300,000. During 2014, Allen Marks purchased an additional $73,000 of capital stock and received $33,000 in cash dividends from the business. What is the amount of net income of Great Marks Company during 2014, assuming that as of December 31, 2014, 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

The net income can be calculated using the accounting equation: Assets = Liabilities + Equity. The change in equity from 2013 to 2014 is the net income plus additional capital stock minus dividends. Equity at the end of 2013 was $640,000 ($940,000 - $300,000). At the end of 2014, equity is $725,000 ($995,000 - $270,000). The change in equity is $85,000 ($725,000 - $640,000). Since Allen Marks purchased $73,000 of capital stock and received $33,000 in dividends, the net income is $45,000 ($85,000 - $73,000 + $33,000).

Allen Marks Is the Sole Stockholder of Great Marks Company