Practice prompt · Q:transactions-to-statements/performance-equity-001

Carry net income into ending equity

Practice calculating income statement scope, net income, owner distributions, and the equity component rollforward.

Updated Sep 5, 2026 Review due Nov 6, 2026

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A corporation begins with $22,000 Contributed Capital, its shareholder-investment account, and $2,000 Retained Earnings. During the year it reports $12,000 Service Revenue, $4,000 Salaries Expense, $1,000 Depreciation Expense, no owner investment, and a $2,000 owner distribution charged to Retained Earnings. There are no other equity changes. Which performance and equity results are correct?

Choose the best answer. A Net income $7,000; ending Retained Earnings $7,000; total ending equity $29,000. B Net income $5,000; ending Retained Earnings $7,000; total ending equity $29,000. C Net income $12,000; ending Retained Earnings $12,000; total ending equity $34,000. D Net income and ending Retained Earnings both equal ending Cash because performance retained by the business must remain in the bank.

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Answer: A

The income statement reports $12,000 revenue less $5,000 expenses, or $7,000 net income. Contributed Capital remains $22,000. Retained Earnings is $2,000 opening plus $7,000 net income less $2,000 owner distributions, or $7,000. Total ending equity is $29,000. Choice A is correct.