Question

Nelson Company experienced the following transactions during Year 1, its first year in operation. Issued $8,000 of common stock to stockholders. Provided $4,300 of services on account. Paid $2,100 cash for operating expenses. Collected $2,900 of cash from accounts receivable. Paid a $200 cash dividend to stockholders. The amount of net income recognized on Nelson Company's Year 1 income statement is:

Answer 1

The net income for Nelson Company's Year 1 is $2,200, calculated by subtracting total operating expenses ($2,100) from services provided ($4,300). Dividends and collected receivables do not affect the income statement.

Step-by-step explanation:

To determine the net income for Nelson Company's Year 1, we can calculate it by subtracting all expenses and dividends from the service revenue.

• Services provided on account: $4,300
• Collected from accounts receivable: $2,900 (This affects the balance sheet, not the income statement, hence not included in income calculation)
• Operating expenses paid in cash: -$2,100
• Dividends paid: -$200 (This does not affect the income statement as it's a distribution of earnings, not an expense)

Now we can calculate the net income for Year 1:

$4,300 (services provided) - $2,100 (operating expenses) = $2,200 (net income)

Issuing shares and collecting cash from accounts receivable do not affect the income statement; they are transactions that affect the balance sheet and the statement of cash flows respectively. Dividends paid is a transaction that affects the retained earnings within the equity section of the balance sheet and does not reduce the net income on the income statement.

Answer 2

The amount of net income recognized on Nelson Company's Year 1 income statement is $2,200

Step-by-step explanation:

Net income : The net income shows a difference between service revenue and operating expenses.

In mathematically,

Net income = Service Revenue - Operating Expenses

= $4,300 - $2,100

= $2,200

All other expenses like cash collected, dividend paid, common stock is irrelevant, Hence, it is not considered while computing the net income.

Thus, The amount of net income recognized on Nelson Company's Year 1 income statement is $2,200