Question

Presented below are changes in all the account balances of Cord Furniture Co. during the current year, except for retained earnings.

		Increase (Decrease)					Increase (Decrease)
Cash		$70,960			Accounts Payable		$(52,120	)
Accounts Receivable (net)		51,200			Bonds Payable		84,090
Inventory		134,200			Common Stock		127,800
Investments		(47,850	)		Paid-In Capital in Excess of Par—Common Stock		15,390

Compute the net income for the current year, assuming that there were no entries in the Retained Earnings account except for net income and a dividend declaration of $26,090 which was paid in the current year.

Answer 1

Ans:

Statement Showing calculation of Change in Retained earnings and Net income for the current year

	Assets	Amount $
	Cash	$70,960
	Accounts receivable	$51,200
	Inventory	$134,200
	Investments	-$47,850
	Net increase in Assets	$208,510
	Liabilities and stockholders equity	Amount $
	Accounts payable	-$52,120
	Bonds payable	$84,090
	Common stock	$127,800
	Paid in capital in excess of par-Common stock	$15,390
	Net increase in Liabilities except Retained earnings	$175,160
	Change in Retained earnings(Refer Working note)	$33,350
	Change in retained earnings	$33,350
Add:	Dividend	$26,090
	Net income	$59,440

Working note:

Net increase in All the assets = Net increase in all the liabilities including Retained earnings

$208,510 = $175,160+ Increase in Retained earnings

Therefore, Increase in Retained earnings = $ 33,350