Question

Stosch Company's balance sheet reported assets of $87,000, liabilities of $24,000 and common stock of $21,000 as of December 31, 2015. If Retained Earnings on the December 31, 2016 balance sheet is $54,000 and Stosch paid a $23,000 dividend during 2016, then the amount of net income for 2016 was which of the following? $23,000 $35,000 $12,000 $42,000

Answer 1

Answer:

The amount of net income for 2016 was $35,000

Explanation:

For calculating the net income first we have to compute the retained earning for 2015 year.

Retained earning = Assets - Liabilities - Common stock

                             = $87,000 - $24,000 - $21,000

                             = $42,000

Now, we can find the net income by retained earning statement which is in equation that it shown below:

Retained earning 2015 + Net income - Dividend paid = Retained earning 2016

$42,000 + Net income - $23,000 = $54,000

$19,000 + Net income = $54,000

Net income = $54,000 - $19,000 = $35,000

Hence, the amount of net income for 2016 was $35,000