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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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Accounting equation

Annie Rasmussen is the owner and operator of Go44, a motivational consulting business. At the end of its accounting period, December 31, 2015, Go44 has assets of $720,000 and liabilities of $180,000. Using the accounting equation and considering each case independently, determine the following amounts:

  1. a. Annie Rasmussen, capital, as of December 31, 2015.
  2. b. Annie Rasmussen, capital, as of December 31, 2016, assuming that assets increased by $96,500 and liabilities increased by $30,000 during 2016.
  3. c. Annie Rasmussen, capital, as of December 31, 2016, assuming that assets decreased by $168,000 and liabilities increased by $15,000 during 2016.
  4. d. Annie Rasmussen, capital, as of December 31, 2016, assuming that assets increased by $175,000 and liabilities decreased by $18,000 during 2016.
  5. e. Net income (or net loss) during 2016, assuming that as of December 31, 2016, assets were $880,000, liabilities were $220,000, and there were no additional investments or withdrawals.

To determine

Accounting equation:

Accounting equation is an accounting tool expressed in the form of equation, by creating a relation between resources or assets of a company and claims on the resources by the creditors and owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Shareholders Equity

Owner’s equity of Company G, as per the each situation.

Explanation

a)

Calculate the Owner’s Equity of Company G as on December 31, 2015.

Assets =  Liabilities + Owners' EquityOwners' Equity =  Assets  Liabilities=  $720,000  $180,000=  $540,000

Hence, the Owner’s Equity of Company G as on December 31, 2015 is $540,000.

b)

Calculate the Owner’s Equity of Company G as on December 31, 2016, assuming assets increased by $96,500 and liabilities increased by $15,000 during 2016.

Assets of 2016 = Assets of 2015 + incerase in 2016= $720,000+ $96,500= $816,500Liabilities of 2016= Liabilities of 2015 + incerase in 2016=$180,000+30,000=$606,500Owners' Equity =  AssetsLiabilities=  $816,500$210,000=  $606,500

Hence, the Owner’s Equity of Company G as on December 31, 2016 is $606,500.

c)

Calculate the Owner’s Equity of Company G as on December 31, 2016, assuming assets decreased by $168,000 and liabilities increased by $15,000 during 2016.

Assets of 2016 = Assets of 2015  decerase in 2016= $720,000168,000=$552,000Liabilities of 2016 = Liabilities of 2015 + incerase in 2016=$180,000+15,000=$195,000Owners' Equity =  AssetsLiabilities=  $552,000$195,000=  $357,000

Hence, the Owner’s Equity of Company G as on December 31, 2016 is $357,000

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