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Beginning equity is $12,000, additional investments are $6,000, dividends are $1,000, and ending equity is $20,000. What was net income for the period?
A$1,000
B$2,000
C$3,000
D$5,000
Answer & Solution
Correct answer: C. $3,000
1. Use the relationship: beginning equity + investments + net income − dividends = ending equity.
2. Substitute with net income as $x$: $12{,}000 + 6{,}000 + x - 1{,}000 = 20{,}000$.
3. Combine the knowns: $17{,}000 + x = 20{,}000$.
4. Solve: $x = 20{,}000 - 17{,}000 = 3{,}000$.
5. Option A is the dividend; option D ignores the dividend offset; option B miscombines the figures.
6. Therefore net income was $3,000.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.8 "Changes in Stockholders' Equity", p.48_