Question

The balance of​ stockholders' equity at the beginning of the year and the end of the year was $40,000 and $66,000​, respectively. The company issued no common stock during the year.

Dividends were $24,000. What was the net income or loss for the​ year?

A. Net income of $50,000
B. Net income of $90,000
C. Net loss of $50,000
D. Net loss of $90,000

Answer 1

The net income for the year is calculated by adding the dividends paid to the increase in stockholders' equity, resulting in a net income of $50,000.

Step-by-step explanation:

To determine the net income or loss for the year, we can use the information provided about stockholders' equity. Given that the balance of stockholders' equity at the beginning of the year was $40,000 and at the end of the year it was $66,000, we see an increase of $26,000. However, we must also consider the dividends paid out during the year, which were $24,000.

To find the net income, we need to add the dividends back to the increase in equity, because dividends reduce the equity but are not an expense that affects net income. Therefore, the net income calculation would be:

Net Income = Increase in Equity + Dividends Paid
Net Income = $26,000 + $24,000
Net Income = $50,000

Thus, the company had a net income of $50,000 for the year.