Question

Pilet Pte Ltd balance sheet reflected assets of 10,000, liabilities of 5,000 and share capital of 2,000 as of December 31,2009. If retained earnings on December 31, 2010 balance sheet is 8,000 and Pilet paid a 2,000 dividend during 2010, then the amount of net income in 2010 would be
(a) $1,000
(b) $7,000
(c) $5,000
(d) None of the above

Answer 1

Answer:

(b) $7,000

Explanation:

retained earnings December 31, 2009 = $10,000 - $5,000 - $2,000 = $3,000

retained earnings December 31, 2010 = $8,000

dividends distributed during 2010 = $2,000

net income = ending retained earnings + dividends - beginning retained earnings = $8,000 + $2,000 - $3,000 = $7,000