The December 31, Year 1, balance sheet for Deen Company showed total stockholder

Question

The December 31, Year 1, balance sheet for Deen Company showed total stockholders' equity of $75,500. Total stockholders' equity increased by $34,000 between December 31, Year 1, and December 31, Year 2. During Year 2, Deen Company acquired $12,500 cash from the issue of common stock. Deen Company paid a $2,000 cash dividend to the stockholders during Year 2 Required Determine the amount of net income or loss Deen reported on its Year 2 income statement. (Hint Remember that stock issues, net income, and dividends all change total stockholders' equity.)

Explanation / Answer

Stockholder's Equity on December 31,Year 2 =Stockholder's Equity on December 31,Year 1 + Net income - Dividends + Shares Issued

Net Income = Stockholder's Equity on December 31,Year 2 - Stockholder's Equity on December 31,Year 1 + Dividends - Shares Issued

= ( $ 34,000 + $ 75,500) - $ 75,500 + $ 2000 - $ 12,500

= $ 23,500

Hence the correct answer is :

Net Income $ 23,500

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