D is corrent. Net income is closed out each year to retained earnings. Since retained earnings is one of the components of owners’ equity, the change in owners’ equity must first be determined. This can be done through the use of the basic accounting equation | Change in assets | = | Change in liab. | + | Change in equity | | $356,000 | = | $108,000 | + | Change in equity | | $248,000 | = | | | Change in equity |
The $248,000 increase shown above is not all due to net income. Owners’ equity increased $264,000 because of the issuance of additional stock ($240,000 + $24,000). The dividend payment decreased owners’ equity by $52,000. Thus, net income must have been $36,000 ($248,000 – $264,000 + $52,000).A is incorrect. Net income is closed out each year to retained earnings. Since retained earnings is one of the components of owners’ equity, the change in owners’ equity must first be determined. This can be done through the use of the basic accounting equation| Change in assets | = | Change in liab. | + | Change in equity | | $356,000 | = | $108,000 | + | Change in equity | | $248,000 | = | | | Change in equity |
The $248,000 increase shown above is not all due to net income. Owners’ equity increased $264,000 because of the issuance of additional stock ($240,000 + $24,000). The dividend payment decreased owners’ equity by $52,000. Thus, net income must have been $36,000 ($248,000 – $264,000 + $52,000). B is incorrect. Net income is closed out each year to retained earnings. Since retained earnings is one of the components of owners’ equity, the change in owners’ equity must first be determined. This can be done through the use of the basic accounting equation| Change in assets | = | Change in liab. | + | Change in equity | | $356,000 | = | $108,000 | + | Change in equity | | $248,000 | = | | | Change in equity |
The $248,000 increase shown above is not all due to net income. Owners’ equity increased $264,000 because of the issuance of additional stock ($240,000 + $24,000). The dividend payment decreased owners’ equity by $52,000. Thus, net income must have been $36,000 ($248,000 – $264,000 + $52,000). C is incorrect. Net income is closed out each year to retained earnings. Since retained earnings is one of the components of owners’ equity, the change in owners’ equity must first be determined. This can be done through the use of the basic accounting equation| Change in assets | = | Change in liab. | + | Change in equity | | $356,000 | = | $108,000 | + | Change in equity | | $248,000 | = | | | Change in equity |
The $248,000 increase shown above is not all due to net income. Owners’ equity increased $264,000 because of the issuance of additional stock ($240,000 + $24,000). The dividend payment decreased owners’ equity by $52,000. Thus, net income must have been $36,000 ($248,000 – $264,000 + $52,000). |
