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NEW QUESTION: 1
At the beginning of the year, Chock Company had $50,000 in assets and $20,000 in liabilities. At the end of the year, the company had $80,000 in assets and $40,000 in liabilities. If, during the year, no investments were made in the business and dividends of $2,000 were declared and paid during the year, net income for the year must have been:
A. $8,000.
B. $12,000.
C. $10,000.
Answer: B
Explanation:
Net income for the year was $12,000. Net income or loss (revenues less expenses) and dividends affect stockholders' equity. Stockholders' equity would have been $30,000 at the beginning of the year ($50,000 - $20,000) and $40,000 at the end of the year ($80,000 - $40,000). The change in stockholders' equity over the year was a $10,000 increase. If $2,000 was declared and paid in dividends, net income must have been $12,000 ($30,000 + $12,000 - $2,000 = $40,000).


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