Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 1-5

Approach: The question asks you to solve for net income; however, no information is given regarding revenues and expenses for the period. Only balance sheet data and transactions affecting stockholders' equity are given. Net income (or net loss) for a period is one reason for change in the balance of stockholders' equity. Write down the items that reconcile the beginning stockholders' equity balance with the ending stockholders' equity balance, enter the amounts known, compute beginning and ending stockholders' equity balances by use of the basic accounting equation, and then solve for the amount of net income.

TIP: Solving an exercise of this type requires a lot of thought and a clear understanding of the relationships of accounting data.