The following changes in American Corporation's account balances occurred during 2014: American paid dividends of $39,000 during the year.There were no changes in Retained Earnings for 2014 except dividends and net income.What was American's net income for 2014?
A) $12,000
B) $27,000
C) $39,000
D) $51,000

Question

The following changes in American Corporation's account balances occurred during 2014:  American paid dividends of $39,000 during the year.There were no changes in Retained Earnings for 2014 except dividends and net income.What was American's net income for 2014?
A) $12,000 
B) $27,000 
C) $39,000 
D) $51,000

Quizplus · Accepted Answer

According to the information given, American Corporation's Retained Earnings did not change during 2014 except for the dividends paid out. This means that the net income earned during the year was fully offset by the dividends paid out. Therefore, the net income for 2014 can be calculated by subtracting the dividends paid from the change in account balances:

Net Income = Change in Account Balances - Dividends Paid
Net Income = ($39,000 - $12,000) - $39,000
Net Income = $27,000

Therefore, American's net income for 2014 was $27,000.

The Following Changes in American Corporation's Account Balances Occurred During