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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Business

Micah Whitney

6 July, 21:09

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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Lailah Vaughan · Answer 1

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