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On January 1, Year 2, Chavez Company had beginning balances as follows: total assets of $12,500, total liabilities of $4,500, and common stock of $3,000. During Year 2, Chavez paid dividends to its stockholders of $2,000. Given that retained earnings amounted to $6,000 at the end of Year 2, what was Chavez's net income for Year 2?

Answer :

Answer:

$3000

Explanation:

Given:

Particular                          Beginning balance           Ending balance

Total Assets                          $12,500

Total Liabilities                     $4,500

Common Stock  $                 $3,000

Retained Earnings                                                               $6,000

  • Dividends Paid $2,000

Calculation of Retained Earnings on 1 Jan

Total Assets  = Total Liabilities + Common Stock+ Retained Earnings

$12,500 = $4,500 + $3,000 + Retained Earnings

$12,500 = $7,500 + Retained Earning

$12,500 - $7,500 = Retained Earning

$5,000 = Retained Earning

Net Income = Retained Earning at end + Dividend paid - Retained Earning as beginning

Net Income = $6,000 + $2,000 -$5000

Net Income = $8,000 - $5,000

Net Income = $3,000

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