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Hanks Corporation's Retained Earnings account balance at December 31, 2009 and December 31, 2010 was $200,000 and $250,000, respectively. During 2010, Hanks issued $39,000 of stock, purchased $15,000 of treasury stock, and declared $20,000 of dividends. No other transactions affected stockholders' equity.
-What was Hanks' 2010 net income?

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Hanks Corporation's Retained Earnings account balance at December 31, 2009 and December 31, 2010 was $200,000 and $250,000, respectively. During 2010, Hanks issued $39,000 of stock, purchased $15,000 of treasury stock, and declared $20,000 of dividends. No other transactions affected stockholders' equity.
-What was Hanks' 2010 net income?

Quizplus · Accepted Answer

The net income for Hanks in 2010 can be calculated by adjusting the change in retained earnings for declared dividends. The change in retained earnings from 2009 to 2010 is $250,000 - $200,000 = $50,000. Since dividends reduce retained earnings and were $20,000, the net income must have been $50,000 (change in retained earnings) + $20,000 (dividends) = $70,000. The issuance of stock and purchase of treasury stock do not affect net income.

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