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20 April, 13:24

Blue Fin started the current year with assets of $709,000, liabilities of $354,500 and common stock of $209,000. During the current year, assets increased by $409,000, liabilities decreased by $54,500 and common stock increased by $284,000. There was no payment of dividends to owners during the year. Use the information above to answer the following question. What was the amount of Blue Fin's net income for the year?

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  1. 20 April, 16:25
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    Net income for the year = $179,500

    Explanation:

    For the information provided we have,

    Opening information

    Assets = $709,000

    Liabilities = $354,500

    Common stock = $209,000

    Therefore, retained earnings at beginning shall be computed:

    Assets = Liabilities + Stockholder's Equity

    $709,000 = $354,500 + $209,000 + Retained Earnings

    $709,000 = $563,500 + Retained earnings

    $145,500 = Retained Earnings

    Now, for the year information is as follows:

    Increase in assets = $409,000, therefore assets = $709,000 + $409,000 = $1,118,000

    Decrease in liabilities = $54,500, therefore, balance of liabilities = $354,500 - $54,500 = $300,000

    Increase in common stock = $284,000, therefore, balance of common stock = $209,000 + $284,000 = $493,000

    Therefore balance of retained earnings = Assets - Liabilities - Common stock

    $1,118,000 - $300,000 - $493,000 = $325,000

    Therefore increase in retained earnings = net income for the year = $325,000 - $145,500 = $179,500
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