Exhibit 2-1 $\begin{array}{lll}
\text { Total Liabilities } & \text { Total Assets } & \
\$ 60,000 & \$ 100,000 & \text { Beginning of the year } \
\$ 325,000 & \$ 500,000 & \text { End of the year }
\end{array}$

Refer to Exhibit 2-1. What is net income, assuming $50,000 of stock was issued and no dividends were paid?
A) $110,000
B) $85,000
C) $70,000
D) $200,000

Question

Exhibit 2-1 $\begin{array}{lll}
\text { Total Liabilities } & \text { Total Assets } & \
\$ 60,000 & \$ 100,000 & \text { Beginning of the year } \
\$ 325,000 & \$ 500,000 & \text { End of the year }
\end{array}$

Refer to Exhibit 2-1. What is net income, assuming $50,000 of stock was issued and no dividends were paid?
A) $110,000
B) $85,000
C) $70,000
D) $200,000

Quizplus · Accepted Answer

Net income is calculated by finding the change in equity. Equity at the beginning is $40,000 ($100,000 - $60,000) and at the end is $175,000 ($500,000 - $325,000). The change in equity is $135,000. Subtract the $50,000 stock issuance from this change to find net income: $135,000 - $50,000 = $85,000.

Exhibit 2-1 Refer to Exhibit 2-1