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# Computing Net Income Given Equity Balances

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San Mateo healthcare has an equity balance of \$1.38 million at the beginning of the year. At the end of the year if the equity balance was \$1.98 million.

A. Assume that San Mateo is a not-for-profit organization. What was the net income for the period?
B. Now assume that San Mateo is an investor and business
.assuming zero dividends, what was San Mateo's net income?
.assuming \$200,000 is dividends, what was the net income?
.assuming \$200,000 is dividends and \$300,000 in additional stock sales, what was San Mateo's net income?

#### Solution Preview

A. A not-for-profit organization does not pay income taxes. It also does not sell stock or pay dividends. Therefore, any increase in equity will be due to net income for the period. (The general formula is Equity at the beginning of the year-net loss for the year+ net income for the year + capital additions-capital subtractions=Equity at the end of the year.) In this case, the net income is:

Equity at the end of the year \$1,980,000
Equity at the beginning of the year 1,380,000
Net income for the year \$ 600,000 ...

#### Solution Summary

San Mateo Healthcare has an equity balance of \$1.38 million at the beginning of the year. At the end of the year if the equity balance was \$1.98 million.

A. Assume that San Mateo is a not-for-profit organization. What was the net income for the period?
B. Now assume that San Mateo is an investor and business
.assuming zero dividends, what was San Mateo's net income?
.assuming \$200,000 is dividends, what was the net income?
.assuming \$200,000 is dividends and \$300,000 in additional stock sales, what was San Mateo's net income?

\$2.19