Stosch Company's balance sheet reported assets of $40,000, liabilities of $15,000 and common stock of $12,000 as of December 31, Year 1. Retained earnings on the December 31, Year 2 balance sheet is $18,000 and Stosch paid a $14,000 dividend during Year 2. What is, the amount of net income for Year 2?

Net Income = $19000

Explanation:

given data

assets = $40,000

liabilities = $15,000

common stock = $12,000

Retained earnings = $18,000

dividend = $14,000

solution

we get here first Opening Retained Earnings that is express as

Opening Retained Earnings = Assets - Liabilities - Common stock ... 1

put here value and we get

Opening Retained Earnings = $40000 - $15000 - $12000

Opening Retained Earnings = $13000

so now we get Net Income During the year

Net Income = Closing retained earning - Opening retained earning + Dividend paid ... 2

put here value we get

Net Income = $18000 - $13000 + $14000

Net Income = $19000