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ACCOUNTING PRINCIPLES 122 5/16 >C<

17th Edition
Horngren
ISBN: 9781323461471

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BuyFindarrow_forward

ACCOUNTING PRINCIPLES 122 5/16 >C<

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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