Beginning of Year: Assets: $28,000 Liabilities: $17,000

Question

End of Year: Assets: $61,000 Liabilities: $27,000
If the company issues common stock of $5,300 and pay dividends of $41,900, how much is net income (loss)?

Answer 1

To find the net income (loss) for the company, we can use the accounting equation and the changes in equity throughout the year.

1. Calculate Initial Equity: At the beginning of the year: \[ \text{Equity}\text{beginning} = \text{Assets}\text{beginning} - \text{Liabilities}\text{beginning} \] \[ \text{Equity}\text{beginning} = 28,000 - 17,000 = 11,000 \]

2. Calculate Final Equity: At the end of the year: \[ \text{Equity}\text{end} = \text{Assets}\text{end} - \text{Liabilities}\text{end} \] \[ \text{Equity}\text{end} = 61,000 - 27,000 = 34,000 \]

3. Determine Change in Equity: \[ \text{Change in Equity} = \text{Equity}\text{end} - \text{Equity}\text{beginning} \] $$\text{Change in Equity}=34,000-11,000=23,000$$

4. Calculate Net Income: The change in equity is influenced by net income and dividends paid. When common stock is issued, it adds to equity, while dividends reduce it.

   The formula for equity at the end of the year incorporating net income and dividends paid is: \[ \text{Equity}\text{end} = \text{Equity}\text{beginning} + \text{Net Income} + \text{Common Stock Issued} - \text{Dividends Paid} \]

   Rearranging this to find net income: \[ \text{Net Income} = \text{Equity}\text{end} - \text{Equity}\text{beginning} - \text{Common Stock Issued} + \text{Dividends Paid} \] Substituting the values: $$\text{Net Income}=34,000-11,000-5,300+41,900$$ $$\text{Net Income}=34,000-11,000-5,300+41,900=34,000-11,000=23,000$$ $$\text{Net Income}=23,000-5,300=17,700+41,900=34,000-11,000$$ Thus: $$\text{Net Income}=23,000$$

The final answer is: $$\text{Net Income}=23,000$$