Question

As of the end of its accounting period, December 31, Year 1, Great Plains Company has assets of $910,000 and liabilities of $300,000. During Year 2, stockholders invested an additional $60,000 and received $35,000 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 $290,000

Answer 1

Answer:

$70,000

Explanation:

From the accounting equation, stockholders' equity is asset minus liabilities, as a result, we would determine stockholders' equity at the end of years 1 and 2 as shown thus:

Year 1 stokcholders' equity=$910,000-$300,000=$610,000

Year 2 stockholders' equity=$995,000-$290,000=$705,000

The closing stockholders' equity is the beginning stockholders' equity plus net income and additional invested capital minus dividends

$705,000=$610,000+net income+$60,000-$35,000

net income=$705,000-$610,000-$60,000+$35000

net income=$70,000