Question

Smith Company had the following on the dates indicated:

12/31/16 12/31/16
Total Assests $60,000 $330,000
Total Liabilities 35,000 25,000

Smith had no stock transactions in 2016; thus, the change in stockholders' equity for 2016 was due to net income and dividends. If dividends were $70,000, how much was Smith's net income for 2016? Use the accounting equation and the statement of retained earnings.

a. $220,000
b. $290,000
c. $150,000
d. $360,000

Answer 1

Answer: b. $290,000

Step-by-step explanation:

Assets = Liabilities + Equity

Change in Assets = Change in liabilities + Change in Equity

560,000 - 330,000 = 35,000 - 25,000 + Change in equity

230,000 = 10,000 + Change in equity

Change in Equity = 230,000 - 10,000

= $220,000

Retained earnings = Change in equity + dividends

= 220,000 + 70,000

= $290,000