During 2009, Stephens Corporation had an increase in total assets of $70,000 and an increase in total liabilities of $90,000. Assuming that capital stock increased by $5,000 and no dividends were paid, calculate Stephens’s net income or net loss for 2009.

Ok, I understand that you will take 90K-70K and get -$20k. However, I am unsure if capital stock adds or deducts from the net income or has no effect at all. Anyone have any ideas?

Set these up exactly like your accounting equation:

+70,000 (A) = +90,000 (L) +5000 (CS) +/-? (RE)

Capital stock increases on the right side as it's equity, but it does not affect net income/loss at all. Capital stock is paid-in or contributed capital, which is separate from retained earnings, which is where the net income/loss goes. They are both equity (right side) but kept separate from each other.

What number needs to go on that right side to make all that balance?