Question

As of the end of its accounting period, December 31, Year 1, Great Plains Company has assets of $940,000 and liabilities of $300,000. During Year 2, stockholders invested an additional $73,000 and received $33,000 in dividends from the business. What is the amount of net income during Year 2, assuming that as of December 31, Year 2, assets were $995,000 and liabilities were $270,000?

Answer 1

Answer:

Th answer is: net income for year 2 is $45,000

Explanation:

We must first determine the equity for both years (equity= assets - liabilities)

• Equity year 1 = $940,000 - $300,000 = $640,000
• Equity year 2 = $995,000 - $270,000 = $725,000

Then we calculate the change in equity:

• change in equity = $725,000 - $640,000 = $85,000

Finally to determine the net income or year 2 we use the following formula:

Net income (Y2)= change in equity - additional investments + dividends paid

net income (Y2) = $85,000 -$73,000 + $33,000 = $45,000