Question

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Nelson Company experienced the following transactions during 2016, its first year in operation.
1. Issued $10,000 of common stock to stockholders.
2. Provided $6,300 of services on account.
3. Paid $2,600 cash for operating expenses.
4. Collected $3,900 of cash from accounts receivable.
5. Paid a $300 cash dividend to stockholders.

The amount of net income recognized on Nelson Company's 2016 income statement is:
-$2,700.
-$3,700.
-$3,400.
-$2,400.

Answer 1

The net income recognized on Nelson Company's 2016 income statement is $3,400, which is calculated by subtracting operating expenses of $2,600 and cash dividends of $300 from the revenues of $6,300.

Step-by-step explanation:

Calculating Net Income

To calculate the net income recognized on Nelson Company's 2016 income statement, we need to consider revenue, expenses, and dividends. Here's how the calculation is done:

Services provided on account (revenue): $6,300

Cash collected from accounts receivable: This is not counted as revenue again because it was already recorded when the services were provided on account.

Operating expenses (expense): -$2,600

Cash dividends (not an expense but a distribution of profits): -$300

Net income is calculated as:

Net Income = Revenues - Expenses - Dividends

Net Income = $6,300 - $2,600 - $300

Net Income = $3,400

Therefore, the correct amount of net income recognized on Nelson Company's 2016 income statement is $3,400.