Monday, March 22, 2010

Net Income Practice Problem

Solve for net income with the following facts:

Last year, beginning and ending total liabilities were $8,400 and $10,000, for a small local business.

At year-end, the owner's equity was $26,000 and the company had total assets that were $2,000 larger than at the beginning of this year.

If new capital stock issued exceeded dividends by $2,400,  calculate net income or net loss for the year?


Accounting Solution to Net Income Problem:

Capital Accounting ending $26,000
Total Liabilities Accounting ending $10,000

The company's Assets ending $36,000

Assets ending is larger than $2,000 at the beginning of the year.  Thus, the beginning total assets is $34,000. With beginning total assets of $34,000 and beginning liabilities of $8,400 our beginning total stockholders equity would be $25,600.  

Capital ending P26,000.00
Dividends 2,400.00

Total $28,400.00
Less Capital, beginning 25,600.00

Net income answer is $ 2,800.00

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