CFA Practice Question

CFA Practice Question

Over a given year, a firm's total assets increased by $7,000 and total liabilities decreased by $4,000. If the firm did not issue any new equity and paid out $1,500 in dividends, then its net income during the year was ______.
A. $9,500
B. $1,500
C. $12,500
Explanation: Total assets - Total liabilities = Equity. Hence, Change in Assets - Change in Liabilities = Change in Equity.

Thus, change in equity = 7,000-(-4,000) = $11,000

All of the net income not paid out as dividends goes into increasing the equity. Since no new shares were issued, Net Income = change in equity + dividends paid. This gives net income = $11,000+$1,500 = $12,500.

User Contributed Comments 2

User Comment
Carol1 It didn't mention the dividends are paid in Cash
Carol1 Oh, ic , it said did not add new equity
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