Chapter 1, Problem 16E

To determine

Concept Introduction:

Owner's Equity - Owner's equity is an important component of the balance sheet. Owner's equity or capital represents the amount invested in the business minus the withdrawals made from the business plus the net income (or minus the net loss) since the business began.

The owner's equity for Ernest Consulting

Explanation of Solution

The owner's equity can be determined using the two methods as explained below:

Alternative 1:

Given in question:   $Cash=\$11,360$

  $Accountsreceivable=14,000$

  $Office\sup plies=3,250$

  $Land=46,000$

  $Officeequipment=18,000$

  $Accountspayable=8,500$

  $Owner\text{'}sequity=Assets-Liabilities$

  $\begin{array}{l}=Cash+Accountsreceivable+Office\sup plies+Land+Officeequipment-Accountspayable\\ =11,360+14,000+3,250+46,000+18,000-8,500\\ =\$84,110\end{array}$

Alternative 2:

  $\begin{array}{l}Netincome(AsperExercise1-15)=\$2,410\\ Owner\text{'}sinvestment=\$84,000\\ Owner\text{'}swithdrawals=2,000\\ \\ Owner\text{'}sequity=Owner\text{'}sinvestment+Netincome-Owner\text{'}swithdrawals\\ =84,000+2,410-2,000\\ =\$84,410\end{array}$