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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Net income and owner's equity for four businesses

Four different proprietorships, Jupiter, Mars, Saturn, and Venus, show the same balance sheet data at the beginning and end of a year. These data, exclusive of the amount of owner's equity, are summarized as follows:

  Total Assets Total Liabilities
Beginning of the year $550,000 $215,000
End of the year 844,000 320,000

On the basis of the preceding data and the following additional information for the year, determine the net income (or loss) of each company for the year. (Hint: First, determine the amount of increase or decrease in owner's equity during the year.)

Jupiter: The owner had made no additional investments in the business and had made no withdrawals from the business.

Mars: The owner had made no additional investments in the business but had withdrawn $36,000.

Saturn: The owner had made an additional investment of $60,000 but had made no withdrawals.

Venus: The owner had made an additional investment of $60,000 and had withdrawn $36,000.

To determine

Net income: The net income refers to the excess of revenues over expenses, in a business after making all the adjustments. The net income can be expressed as follows:

Net Income = Revenues - Expenses

Owner’s equity: Owner’s equity refers to the right the owner posses over the resources of the business. Revenues and the expenses are the components of the owner’s equity.

Owners' Equity = {(Owners' investments)+(Owners' withdrawals)+((Revenues)(Expenses))}

To determine: the net income for the given companies.

Explanation

The net income for the Company J:

Asset  = Liabilities + Owner's Equity
End of the year $844,000  = $320,000  + $524,000
Beginning of the year $550,000  = $215,000  + $335,000
$294,000 = $105,000 + $189,000
Net Income ( increase in owner's equity) $189,000

Table (1)

The difference between the owner's equity in the beginning and the end of the year is considered as the net income.

The net income for the Company M:

Asset  = Liabilities + Owner's Equity
End of the year $844,000  = $320,000  + $524,000
Beginning of the year $550,000  = $215,000  + $335,000
$294,000 = $105,000 + $189,000
Increase in owner's equity $189,000
Withdrawals (+) $36,000
Net Income $225,000

Table (2)

The sum of the increase in owner's equity and the withdrawals is considered as the net income...

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