[sagnik2422]

Hi I need some help with steps on this :
The changes in account balances for Elder Company for 2006 are as follows:
Assets : $480,000 debit
Common Stock : $250,000 credit
Liabilities : $160,000 credit
Paid- In Capital Excess of Par : $30,000 credit


Assuming the only change in R/E in 2006 were for net income and $50,000 dividend, what was net income for 2006?
A) $40,000 B) 90,000 C) 60,000 D) 70,000


Thanks in advance.

I do not know the beginning balance of R/E so how do I find it?

[Fidget1]

As you know, total debits and total credits should be equal. So if you add up the debits, then add up the credits, you'll see there's a $40,000 shortfall on the credits, which is effectively the balance on the retained earnings at the year end. As $50,000 has already been paid out of r/e for dividends, the total before paying dividends must've been $90,000.

As the question says the only changes in r/e were for net income and dividends, it suggests that there was an opening balance on r/e and therefore the the opening balance must've been $50,000 and net income for the year $40,000.

[paraclete]

assets-liabilites = equity