Question

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Bennett Griffin and Chula Garza organized Cole Valley Book Store as a corporation; each contributed $70,200 cash to start the business and received 5,400 shares of common stock. The store completed its first year of operations on December 31, current year. On that date, the following financial items for the year were determined: December 31, current year, cash on hand and in the bank, $68,850; December 31, current year, amounts due from customers from sales of books, $44,000; unused portion of store and office equipment, $75,000; December 31, current year, amounts owed to publishers for books purchased, $13,600; one-year note payable to a local bank for $3,900. No dividends were declared or paid to the stockholders during the year.

What was the amount of net income for the year? (Hint: Use the retained earnings equation [Beginning Retained Earnings + Net Income − Dividends = Ending Retained Earnings] to solve for net income.)

Answer 1

Calaculation of the amount of net income for the year:

Net income for the year

= Ending Retained Earnings balance + Dividends - Beginning Retained Earnings balance

= $100150 + 0 - $0

= $100150

Notes:

1. Ending Retained Earnings balance

Particulars (year end balances)	Amount($)	Amount($)
Total Assets:
Cash & bank balance	$68850
Accounts Receivable	$44000
Store & equipment	$75000	$187850
Less: Liabilities
Accounts payable	$13600
Note payable	$3900	($17500)
Total stockholders equity		$170350
Less: Common stock, 5400 shares		($70200)
Retained Earnings balance		$100150

2. There is no retained earnings, beginning balance and no dividends are paid during the year.

That implies

Beginning Retained earnings = $0

Dividends = $0

_____×_____

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