Stosch Company's balance sheet reported assets of $40,000,liabilities of $15,000 and common stock of $12,000 as of December 31,2015.If Retained Earnings on the December 31,2016 balance sheet is $18,000 and Stosch paid a $14,000 dividend during 2016,then the amount of net income for 2016 was which of the following?
A)$17,000
B)$19,000
C)$13,000
D)$21,000

Question

Quizplus · Accepted Answer

The correct answer is B. The amount of net income for 2016 was $19,000. This can be calculated using the following formula:Net income = Retained earnings, end of year - Retained earnings, beginning of year + Dividends paidRetained earnings, beginning of year = $0 (since the balance sheet as of December 31, 2015 does not report retained earnings)Retained earnings, end of year = $18,000Dividends paid = $14,000Therefore, net income = $18,000 - $0 + $14,000 = $19,000

Stosch Company's Balance Sheet Reported Assets of $40,000,liabilities of $15,000