The changes in account balances for Elder Company for 2011 are as follows: Asset

Question

The changes in account balances for Elder Company for 2011 are as follows:

Assets                                                              $480,000 debit

Common stock                                                 250,000 credit

Liabilities                                                          160,000 credit

Paid in capital – excess of par                          30,000 credit         
  
Assuming the only changes in retained earnings in 2011 were for net income and a $50,000 dividend, what was net income for 2011? 
a. $40,000.
b. $60,000.
c. $70,000.
d. $90,000.

Explanation / Answer

A = L + E 480,000 = 250,000 + 160,000 + 30,000 + retained earnings 480,000 = 440,000 + RE RE = 40,000 That is retained earnings after dividends were paid out So really, it's 40,000 + 50,000 dividends = $90,000 Net Income Answer is D.

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