A new firm issued $500 in common stock. At the end of the first year, the firm had total assets of $1100 and total debt of $400. What was the amount of net income for the first year, assuming the firm paid no dividends?

Question

Quizplus · Accepted Answer

The firm started with $500 in equity (from issuing common stock) and ended with $700 in equity ($1100 in assets - $400 in debt). Since there were no dividends paid, the increase in equity ($200) is the net income.

A New Firm Issued $500 in Common Stock