Dynamic Production Services started the year with total assets of $120,000 and total liabilities of $55,000. The revenues and the expenses for the year amounted to $100,000 and $80,000, respectively. During the year, the company did not issue any common stock, but it distributed dividends of $50,000.
Calculate Dynamic's net income for the year.
Dividends may be in the form of cash, stocks or property. Dividends are given to the shareholders as a return to the investments they put to the company. Dividends do not affect the revenue and expenses of the company but it decreases the retained earnings account.
Answer and Explanation:
The payment of dividends is not included in the computation because it does not affect the income and expense account and the company's net profit. It only affects the total shareholder's equity because it is directly debited to the retained earnings account.
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from Finance 101: Principles of FinanceChapter 16 / Lesson 1