Information related to the Franklin Company for the calendar year 2010 follows: $\begin{array}{ll}
\text { Liabilities, December } 31,2010 & \$ 400 \
\text { Assets, December } 31,2010 & 700 \
\text { Dividends clistributed during } 2010 & 90 \
\text { Liabilities, December } 31,2009 & 250 \
\text { Asssets, December } 31,2009 & 350
\end{array}$ Assuming no capital stock was issued during 2010, the net income earned by the Jones Company during 2010 was
A)$110
B)$200
C)$260
D)$290

Question

Quizplus · Accepted Answer

The net income can be calculated by understanding the change in equity. Equity at the end of 2010 is Assets - Liabilities = $700 - $400 = $300. Equity at the end of 2009 is $350 - $250 = $100. The change in equity is $300 - $100 = $200. However, dividends reduce equity, so to find the net income, add the dividends back to the change in equity: $200 + $90 = $290.

Information Related to the Franklin Company for the Calendar Year