Question

The following changes in Vel Corp.'s account balances occurred during the current year:

Increase Assets $ 89,000
Liabilities27,000
Capital stock 60,000
Additional paid-in capital 6,000

Except for a $13,000 dividend payment and the year's earnings, there were no changes in retained earnings for the current year. What was Vel's current year net income?

Answer 1

• All working forms part of the answer
• First, we need to calculate total Equity Balance:

A	Assets	$                                   89,000.00
B	Liabilities	$                                   27,000.00
C = A - B	Equity	$                                   62,000.00

Equity contains Common Stock, additional paid in capital and Retained Earnings.

• Workings and Answer

A	Capital Stock	$                                   60,000.00
B	Additional Paid in capital	$                                     6,000.00
C = A + B	Total Equity (without Retained Earnings)	$                                  66,000.00
D	Equity [calculated above]	$                                   62,000.00
E = C - D	Retained earnings balance	$                                   (4,000.00)
F	Dividends paid	$                                   13,000.00
G = E + F	Net Income for Current Year	$                                     9,000.00

• Correct Answer = $ 9,000 = NET INCOME