The following data pertains to Greenwold Manufacturing.Total assets at January 1,20X9,were $290,000; at December 31,20X9,total assets were $334,000.During 20X9,sales were $995,000; cash dividends declared were $10,000; and operating expenses (exclusive of cost of goods sold)were $545,000.Total liabilities at December 31,20X9,were $128,000; at January 1,20X9,total liabilities were $105,000.There was no additional paid-in capital during 20X9.What was net income for 20X9?
A)$26,000
B)$31,000
C)$201,000
D)$440,000
E)$450,000

Question

Quizplus · Accepted Answer

To find net income, we need to use the formula: Net income = Sales - Cost of goods sold - Operating expenses - Dividends
We do not have information about cost of goods sold or additional paid-in capital, so we cannot directly calculate net income. However, we can use the accounting equation to find owner's equity at both January 1 and December 31, 20X9, and then calculate the change in owner's equity during the year, which must equal net income.
Owner's equity at January 1, 20X9: Assets - Liabilities = $290,000 - $105,000 = $185,000
Owner's equity at December 31, 20X9: Assets - Liabilities = $334,000 - $128,000 = $206,000
Change in owner's equity during 20X9: $206,000 - $185,000 = $21,000
However, we also need to add back the dividends declared to get net income: $21,000 + $10,000 = $31,000
Therefore, the best choice is B.

The Following Data Pertains to Greenwold Manufacturing