Question

The balance sheet of Sand Sportswear reports total equity of $500,000 and $650,000 at the beginning and end of the year, respectively. The return on equity for the year is 20%. What is Sand Sportswear's net income for the year

Answer 1

Sand Sportswear's net income for the year is $115,000

Step-by-step explanation:

In order to calculate the net income for the year we would have to us the following formula:

Return on equity = Net income / Average total equity

Return on equity=20%

Average total equity=($500,000 + $650,000) / 2 = $575,000

Therefore, Net income=Average total equity*Return on equity

Net income=$575,000*20%

Net income=$115,000

Sand Sportswear's net income for the year is $115,000