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9 October, 19:36

DrexlerDrexler had no stock transactions in 20182018 , so the change in stockholders' equity for 20182018 was due to net income and dividends. If dividends were $ 80 comma 000$80,000 , how much was DrexlerDrexler 's net income for 20182018 ? Use the accounting equation and the statement of retained earnings.

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  1. 9 October, 21:10
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    Drexler's net income for 2018 was $300,000.

    Explanation:

    Assuming the following asset and liability figures for Drexler (missing in the question):

    On 31 December 2017:

    Total assets $330,000

    Total liabilities $25,000

    On 31 December 2018:

    Total assets $560,000

    Total liabilities $35,000

    Hence, during the year 2018:

    Increase in total assets = $560,000 - $330,000 = $230,000

    Increase in total liabilities = $35,000 - $25,000 = $10,000

    According to the accounting equation:

    Capital = Assets - Liabilities

    Hence, Change in Capital = Change in Assets - Change in Liabilities

    = $230,000 - $10,000

    = $220,000

    According to the statement of retained earnings:

    Change in stockholders' equity (i. e. capital) = Net income - Dividends

    $220,000 = Net income - $80,000

    Net income = $220,000 + $80,000

    Net income = $300,000
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