Question

Calculate the net income earned during the year. Assume that the change to stockholder's equity results only from net income earned during the year.

Balance Jan. 1, 2019
Asset: $50,000
Liabilities: $40,000

Balance Dec 31, 2019
Assets: $35,000
Liabilities: $20,000

Answer 1

The net income earned during the year is $ 5,000

Step-by-step explanation:

The first point to kn ow is the accounting equation is A=L+SE

So to calculate the opening stockholders equity we can rearrange the accounting equation to be:

A-L = SE

so opening SE is

Assets $ 50,000 - Liabilities $ 40,000 = Stockholders Equity $ 10,000

Ending Stockholders equity is:

Assets $ 35,000 - Liabilities $ 20,000 = Stockholders Equity $ 15,000

Since the question mentions that the change in stockholders equity is only due to net income, the increase of $ 5,000 represents the net income for 2019.