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17th Edition

Horngren

ISBN: 9781323461471

To determine

**Accounting Equation:**

TheAccounting equation of the business is based on the double entry aspects the accounting entries. The books always complete the double entry aspects of every debit must have a credit.

Therefore, based on this, there always exist an Accounting equation which states that the sum of all the assets is equal to sum of all outside liabilities (referred as Total liabilities) and Stockholders ‘equity (or owner’s equity)

The above equation always holds good irrespective of number of transactions handled by the business. Therefore, we can conclude that whenever there is one item (i.e. assets or Total liabilities or Owner’s equity) is missing for any reason. The same can be computed by applying the Accounting equation.

**Requirement1:**

**To Determine:** TheComputation of missing amount of expense incurred.

Answer

**Solution:** TheExpense incurred during the period has been computed as $258,000.

Explanation

The Expense incurred for the ending Dec31, 2016 has been computed as under:

Statement showing Computation of Expenses incurred: | |

Beginning Equity on Jan1 2016 | 20000 |

Add: Contributions | 0 |

Add: Revenues | 257000 |

Sub-total | 277000 |

Less: Withdrawals | 4000 |

Less: Ending Owner's equity on Dec31 2016 | 15000 |

Expenses incurred | 258000 |

The Beginning and ending amount of Owner’s equity for the above purposes has been computed as under:

Computation of Owner's equity | ||

Jan01 2016 | Dec31 2016 | |

Total Assets | 64000 | 54000 |

Less: Total Liabilities | 44000 | 39000 |

Owner's Equity | 20000 | 15000 |

To determine

**Requirement2:**

**To determine:** TheComputation of net income or loss incurred by Meehan Company.

Answer

**Solution:** The net loss suffered by Meehan Company for the year ending Dec31 2016 has been computed as ($1000).

Explanation

The Net loss computed for the year has been computed as under:

Computation of Net income for the year ending 31.12.16 | |

Net revenue earned during the year | 257000 |

Less: Operating expense incurred for the year | 258000 |

Net loss incurred during the year | -1000 |

Conclusion

To conclude, it must be said that accounting equation always holds good for assets equals total liabilities and owner’s equity.

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