Carlos Ramirez and Camila Garza organized New World Book Sto

Carlos Ramirez and Camila Garza organized New World Book Store as a corporation; each contributed $71,800 cash to start the business and received 4,500 shares of common stock. The store completed its first year of operations on December 31, current year. On that date, the following financial items for the year were determined: December 31, current year, cash on hand and in the bank, $69,650; December 31, current year, amounts due from customers from sales of books, $42,500; unused portion of store and office equipment, $72,500; December 31, current year, amounts owed to publishers for books purchased, $13,500; one-year note payable to a local bank for $3,500, with interest due of $210. No dividends were declared or paid to the stockholders during the year.

What was the amount of net income for the year? (Hint: Use the retained earnings equation [Beginning Retained Earnings + Net Income Dividends = Ending Retained Earnings] to solve for net income.)

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Solution

ASSETS: Cash on hand and bank 69650 Accounts receivable 42500 Store and office equipment 72500 Total assets 184650 LIABILITIES AND EQUITY: Accounts payable 13500 Note payable (including accrued interest) 3710 Common stock (71800*2) 143600 Retained earnings 23840 Total liabilities and equity 184650 As it is the first year and no dividends have been paid the ending retained earnings balance is the Net income for the year. Answer: Net Income for the year = $23,840