Native Dave's Consultants had the following balance sheet amounts at the beginning of the year: $\begin{array}{lr}
\text { Total assets } & \$ 400,000 \
\text { Total owner's equity } & 150,000
\end{array}$ ? During the year, total assets increased by $100,000 and total liabilities increased by $40,000.The company also paid $30,000 in dividends.No other transactions occurred except revenues and expenses.How much is net income for the year?
A) $30,000
B) $60,000
C) $70,000
D) $90,000

Question

Quizplus · Accepted Answer

Net income for the year is calculated by considering the changes in equity, given that the only transactions affecting equity are dividends, revenues, and expenses. The initial equity is $150,000. Assets increased by $100,000, and liabilities increased by $40,000, which means the equity must have increased by $60,000 ($100,000 increase in assets - $40,000 increase in liabilities) to balance the equation. Therefore, the ending equity is $210,000 ($150,000 initial + $60,000 increase). Since dividends of $30,000 were paid, the increase in equity due to net income must be $90,000 ($60,000 increase to reach $210,000 ending equity + $30,000 dividends).

Native Dave's Consultants Had the Following Balance Sheet Amounts at the Beginning