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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

## Tanner Company: Compute the Missing Amounts in the Company's Financial Statement

Incomplete financial statements for Tanner Company are given:
Compute the missing amounts on the company's financial statements.
***Full details are available in the 3 attachments.

---------------------------------

Tanner Company
Income Statement
For the Year Ended December 31

Sales......................................................................................................................... \$2,700,000
Cost of goods sold........................................................................................................... ? _
Gross Margin................................................................................................................... ?
Net operating income.................................................................................................... ?
Interest expense............................................................................................................ ____45,000_
Net income before taxes.............................................................................................. ?
Income taxes (40%)....................................................................................................... ______?___
Net income..................................................................................................................... ===========

Tanner Company
Balance Sheet
December 31
Current Assets:
Cash..................................................................................................................... \$ ?
Accounts receivable, net................................................................................. ?
Inventory........................................................................................................... ?__
Total current assets........................................................................................................ \$ ?__
Current liabilities............................................................................................................ \$250,000
Bonds payable, 10%............................................................................................ ?__
Total liabilities................................................................................................................. ____?__
Stockholders' equity:
Common stock, \$2.50 par value................................................................... ?
Retained earnings.......................................................................................... ___?___
Total stockholders' equity.......................................................................................... ___?___
Total liabilities and stockholders' equity................................................................. \$ ?
========

The following information is available about the company:
a. Selected financial ratios computed from the statements above are given below:

Current Ratio........................................................ 2.40
Acid-test ratio...................................................... 1.12
Accounts receivable turnover.......................... 15.0
Inventory turnover............................................. 6.0
Debt-to-equity ratio........................................... 0.875
Times interest earned....................................... 7.0
Earnings per share............................................... \$4.05
Return on total assets........................................ 14%

b. All sales during the year were on account.
c. The interest expense on the income statement relates to the bonds payable; the amount of bonds outstanding did not change throughout the year.
d. There were no changes in the number of shares of common stock outstanding during the year.
e. Selected balances at the beginning of the current year (January 1) were as follows:

Accounts receivable........................................... \$160,000
Inventory............................................................. \$280,000
Total assets.......................................................... \$1,200,000

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