Question

A company reported the following asset and liability balances at the end of 2015 and 2016:

2015 2016
Assets $150,000 $180,000
Liabilities $70,000 $80,000
If the company paid dividends totaling $5,000, what is the amount of net income for 2016?
A. $20,000.B. $105,000.C. $80,000.D. $25,000.

Answer 1

D. $25,000

Step-by-step explanation:

The equity is the difference between assets and liabilities

Opening equity=$150,000-$70,000

opening equity=$80,000

Ending equity=$180,000-$80,000

ending equity=$100,000

The ending equity formula below can be used to derive the net income for 2016:

ending equity=beginning equity+ net income-dividends

The net income increases the amount of ending equity while dividends decrease it.

net income=unknown

dividends=$5000

$100,000=$80,000+net income-$5000

net income=$100,000-$80,000+$5,000

net income=$25,000