Question

In year 1, Company A has the following info in its financial statements: Retained Earnings (beginning balance) of $32,000; Retained Earnings (ending balance) of $95,000; Revenue of $100,000, Expenses (including tax expense) of $30,000, and dividends declared $7,000.

What amount will be shown as Net Income in Income Statement?

a.$95,000

b.$70,000

c.$63,000

d.$77,000

Answer 1

b.$70,000

Step-by-step explanation:

The net income could be computed by two method

First method is

Net income = Revenue - expenses

= $100,000 - $30,000

= $70,000

And, the second method is

The ending balance of retained earning = Beginning balance of retained earnings + net income - dividend paid

$95,000 = $32,000 + net income - $7,000

So, the net income is $70,000