Over a given year, a firm's total assets increased by $7,000 and total liabilities decreased by $4,000. If the firm did not issue any new equity and paid out $1,500 in dividends, then its net income during the year was ________.
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A. B. C. D.D
Total assets - Total liabilities = Equity. Hence,
Change in Assets - Change in Liabilities = Change in Equity.
Thus, change in equity = 7,000-(-4,000) = $11,000
All of the net income not paid out as dividends goes into increasing the equity. Since no new shares were issued, Net Income = change in equity + dividends paid.
This gives net income = $11,000+$1,500 = $12,500.