The
total assets and liabilities at the beginning and ended of the year for Pizarro
Company are listed below.
Assets = Liabilities + Stockholder’s
equity
Beginning of year $110,000 $45,000 65,000
Ending of year 200,000 120,000 80,000
Determine Pizarro Company’s net income
for the year under each of the following
Alternatives.
1.
The stockholder made no investments in the business,
and no dividends were paid during the year.
2.
The stockholder made no investments in the business,
but dividends of $22,000 were paid during the year.
3.
The stockholder made investments of $13,000, but no
dividends were paid during the year.
4.
The stockholder made investments of $10,000 in the
business, and dividends of $22,000 were paid during the year.
Answer:
1.
Investment = 0; Dividends = 0; and Net Income =?
By: Beginning
of Balance + Investment + Net Income – Dividends = Ending of balance
ð Net Income =
Ending of balance – Beginning of balance –Investment + Dividends
ð 80,000 –
65,000 – 0 + 0 = 15,000
So Pizarro
Company’s Net Income is $15,000
2.
Investment = 0; Dividends = 22,000; and Net Income =?
By: Beginning of Balance + Investment + Net Income
– Dividends = Ending of balance
ð Net Income =
Ending of balance – Beginning of balance –Investment + Dividends
ð 80,000 –
65,000 – 0 + 22,000 = 37,000
So Pizarro
Company’s Net Income is $37,000
3.
Investment = 13,000; Dividends = 0; and Net Income =?
By: Beginning of Balance + Investment + Net Income
– Dividends = Ending of balance
ð Net Income =
Ending of balance – Beginning of balance –Investment + Dividends
ð 80,000 –
65,000 – 13,000 + 0 = 2,000
So Pizarro
Company’s Net Income is $2,000
4.
Investment = 10,000; Dividends = 22,000; and Net Income
=?
By: Beginning of Balance + Investment + Net Income
– Dividends = Ending of balance
ð Net Income =
Ending of balance – Beginning of balance –Investment + Dividends
ð 80,000 –
65,000 – 10,000 + 22,000 = 27,000
So Pizarro
Company’s Net Income is $27,000
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