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 net income can be determined by calculating the change in equity. The initial equity was $500 (from common stock). At the end of the year, equity is total assets ($1100) minus total debt ($400), which equals $700. Therefore, the net income is $700 - $500 = $200.

A New ﬁRm Issued $500 in Common Stock