Question

Carlos Ramirez and Camila Garza organized New World Book Store as a corporation; each contributed $70,900 cash to start the business and received 5,200 shares of common stock. The store completed its first year of operations on December 31, 2014. On that date, the following financial items for the year were determined: December 31, 2014, cash on hand and in the bank, $70,050; December 31, 2014, amounts due from customers from sales of books, $40,000; unused portion of store and office equipment, $77,000; December 31, 2014, amounts owed to publishers for books purchased, $13,600; one-year note payable to a local bank for $3,400, with interest due of $180. No dividends were declared or paid to the stockholders during the year1)AssetsCash:Accounts Receivable:Store and office equipment:Total Assets:LiabilitiesAccounts Payable:Note Payable:Interest Payable: 180Total Liabilities:Stockholder' EquityCommon Stock:Retained Earnings: 28,070Total stockholders' equity:Total liabilities and stockholders' equity:2) What was the amount of net income for the year? (Hint: Use the retained earnings equation [Beginning Retained Earnings + Net Income − Dividends = Ending Retained Earnings] to solve for net income.)

Answer 1

Answer:

Net Income = $28,070

Explanation:

As for the provided details:

Balances as on December 31, 2014

Cash = $70,050

Accounts Receivables = $40,000

Inventory = $77,000

Total Assets = $187,050

Accounts Payable = $13,600

Note Payable = $3,400

Interest payable = $180

Total Liabilities = $17,180

Common Stock = $70,900 + $70,900 = $141,800

Retained earnings = $28,070

Total Stockholder's Equity = $169,870

Total of Equity and Liabilities = $187,050

Now, since it is the first year of operations, the balance of retained earnings in beginning = $0.

Also no dividend is paid, therefore, net income for the year shall be

Opening Retained Earnings + Net Income - Dividend = Closing Retained Earnings

$0 + Net Income - $0 = $28,070

Thus, Net Income = $28,070