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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Answers (1)
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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