Question

Nelson Company experienced the following transactions during Year 1, its first year in operation.

1.Issued $8,000 of common stock to stockholders
2.Provided $4,300 for services on account
3.Paid $2,100 cash for operating expenses
4.Collected $2,900 of cash from accounts receivable
5.Paid a $200 cash dividend to stockholders
6.The amount of net income recognized on Nelson Company's Year 1 income statement is:

A. $1,800
B. $2,300
C. $1,100
D. $2,500

Answer 1

Net income for Nelson Company's Year 1 is calculated by subtracting expenses from revenues, which is $4,300 in revenue minus $2,100 in expenses, equating to a net income of $2,200. None of the given options match this figure exactly.

Step-by-step explanation:

To determine Nelson Company's Year 1 net income, we need to look at the revenue, expenses, and dividends paid out. Here are the relevant transactions during the operation:

1. Issuance of common stock is an equity transaction and does not affect net income.
2. Providing services on account is revenue; this will be $4,300.
3. Paying cash for operating expenses is an expense, amounting to $2,100.
4. Collecting cash from accounts receivable is a cash inflow but does not affect net income, since the revenue was already recognized in transaction 2.
5. Paying a cash dividend is a distribution of profits and does not affect net income calculation.

The net income is the revenues minus the expenses. Based on the transactions, Nelson Company's net income would be:

Revenue: $4,300

Expenses: $2,100

Net Income: $4,300 - $2,100 = $2,200

The closest option is B. $2,300, however, it seems there might be an issue with the provided options, as the calculated net income is $2,200, which is not listed.