Shareholders of Forest Glen Corporation have received $35,000 in dividends in the current year.At year end the corporation has total assets of $500,000, total liabilities equal to $300,000, and contributed capital totaling $100,000.If retained earnings at the beginning of the year was $80,000, what was Forest Glen's net income for the current year?
A)$80,000
B)$215,000
C)$55,000
D)$10,000
E)$45,000

Question

Quizplus · Accepted Answer

$55,000To find the net income for the current year, we first calculate the retained earnings at the end of the year. The equity of the corporation can be calculated as total assets minus total liabilities, which is $500,000 - $300,000 = $200,000. This equity is composed of contributed capital and retained earnings. Given that contributed capital is $100,000, the retained earnings at the end of the year must be $200,000 - $100,000 = $100,000. The change in retained earnings is the net income minus dividends. Therefore, if we start with $80,000 in retained earnings, add the net income, and then subtract $35,000 in dividends to end with $100,000 in retained earnings, the net income must be $55,000 ($100,000 - $80,000 + $35,000).

Shareholders of Forest Glen Corporation Have Received $35,000 in Dividends