Question

11. (8 points) Changes in all of E's balance sheet accounts during the current year, EXCEPT the change in E's retained earnings account follow. Compute E's net income (or net loss) for the year assuming the only two entries E made to her retained earnings account during the year were for a cash dividend declared and paid of $50,000 and her net income (or net loss) for the year. (This is NOT a statement of cash flows problem - do NOT format it like a statement of cash flows problem.) Cash decreased Accounts receivable decreased Fixed assets increased Accumulated depreciation increased Accounts payable decreased Unearned revenue decreased Notes payable increased Common stock increased Additional paid-in-capital increased $250,000 $ 65,000 $165,000 $ 90,000 $120,000 $ 15,000 $ 80,000 $ 5,000 $100,000

Answer 1

Computation of E's net income (loss)

Particulars	Amount ($)
Cash decreased	$                    (250,000)
accounts receivable decreased	$                      (65,000)
fixed assets increased	$                      165,000
accumulated depreciation increased	$                      (90,000)
Decrease in Assets (A)	$                    (240,000)
Accounts payable decreased	$                    (120,000)
Unearned revenue decreased	$                      (15,000)
Notes payable increased	$                        80,000
Decrease in Liabilities (B)	$                      (55,000)
Decrease in stockholders equity ( A-B)	$                    (185,000)
Less: common stock increased	$                        (5,000)
additional paid in capital increased	$                    (100,000)
Add: dividend declared	$                        50,000
Net income (loss)	$                    (240,000)

Notes:

1. Assets = liabilities + stockholders’ equity. The difference between assets and liabilities would equal stockholders’ equity.
2. Stockholders’ equity consists of capital section and reserves. It includes common stock , additional paid in capital i.e. premium and retained earnings.
3. Retained earnings is the profit after appropriation. The year end profit (loss) is transferred to retained earnings. Out of appropriation, dividends are paid.
4. The increase in accumulated depreciation decreases the written value of asset.