Question

As of the end of its accounting period, December 31, Year 1, Great Plains Company has assets of $926,953 and liabilities of $273,706. During Year 2, stockholders invested an additional $28,458 and received $25,851 in dividends from the business. What is the amount of net income during Year 2, assuming that as of December 31, Year 2, assets were $985,032 and liabilities were $238,017

Answer 1

$65,310

Step-by-step explanation:

As of the end of its accounting period, December 31, Year 1, Great Plains Company has assets of $926,953 and liabilities of $273,706.

During Year 2, stockholders invested an additional $28,458 and received $25,851 in dividends from the business.

What is the amount of net income during Year 2, assuming that as of December 31, Year 2, assets were $985,032 and liabilities were $238,017.

The amount of net income can be derived by the increase in the value of asset and a reduction in the value of liabilities.

Increase in asset = 985,032 - 926,953 = $58,079

Decrease in liabilities = 273,706 - 238,017 = $35,689

Total = 93,768.

Therefore the total increase in value of the business = $93,768

Amount internally generated = $93,768 - additional capital of $28,458 = $65,310