Question

Bennett Griffin and Chula Garza organized Cole Valley Book Store as a corporation; each contributed $70,200 cash to start the business and received 5,400 shares of common stock. The store completed its first year of operations on December 31, current year. On that date, the following financial items for the year were determined: December 31, current year, cash on hand and in the bank, $69,350; December 31, current year, amounts due from customers from sales of books, $39,000; unused portion of store and office equipment, $73,000; December 31, current year, amounts owed to publishers for books purchased, $13,300; one-year note payable to a local bank for $3,400. No dividends were declared or paid to the stockholders during the year.
Required:
What was the amount of net income for the year?

Answer 1

Answer:

The net income is $94,450

Explanation:

For computing the net income first determine the total assets and total liabilities which is shown below:

For total assets

= cash + account receivable + store & office equipment

= $69,350 + $39,000 + $73,000

= $181,350

For total liabilities

= Account payable + note payable

= $13,300 + $3,400

]= $16,700

Now with the help of an accounting equation, the total stockholder equity is

Total assets = Total liabilities + common stock + net income

$181,350 = $16,700 + $70,200 + net income

So, the net income is $94,450