A company had the following balance sheet amounts at the beginning of the year: $\begin{array}{llcc}
\text { Total assets } & \$ 650,000 \
\text { Total stockholder's equity } & 250,000
\end{array}$
During the year,total assets increased by $350,000,total liabilities increased by $100,000,and dividends were paid in the amount of $300,000.No other transactions occurred except revenues and expenses.How much is net income for the year?

Question

A company had the following balance sheet amounts at the beginning of the year: $\begin{array}{llcc}
  \text { Total assets  } & \$ 650,000 \
 \text { Total stockholder's equity } & 250,000
\end{array}$
 During the year,total assets increased by $350,000,total liabilities increased by $100,000,and dividends were paid in the amount of $300,000.No other transactions occurred except revenues and expenses.How much is net income for the year?

Quizplus · Accepted Answer

We can use the accounting equation to find the change in stockholder's equity, which is equal to net income:

Assets = Liabilities + Stockholder's Equity

At the beginning of the year:

$650,000 = Liabilities + $250,000

Liabilities = $400,000

At the end of the year:

$1,000,000 = $400,000 + Stockholder's Equity

Stockholder's Equity = $600,000

The change in stockholder's equity is:

$600,000 - $250,000 = $350,000

This is equal to net income, since no other transactions occurred except revenues and expenses. Therefore, the net income for the year is $350,000, which is closest to answer choice D ($550,000).

A Company Had the Following Balance Sheet Amounts at the Beginning