Question

A corporation had the following assets and liabilities at the beginning and end of this year. Assets Liabilities Beginning of the year $ 60,000 $ 20,000 End of the year 105,000 36,000 a. Owner made no investments in the business, and no dividends were paid during the year. b. Owner made no investments in the business, but dividends were $1,250 cash per month. c. No dividends were paid during the year, but the owner did invest an additional $55,000 cash in exchange for common stock. d. Dividends were $1,250 cash per month, and the owner invested an additional $35,000 cash in exchange for common stock. Determine the net income earned or net loss incurred by the business during the year for each of the above separate cases: (Decreases in equity should be indicated with a minus sign.)

Answer 1

Answer:

a) 29,000

b) 44,000

c) -26,000 (loss)

d)    9,000 gain

Explanation:

Net income will be the difference in equity plus dividends less contributions.

$( ending equity - beginning equity) + dividends - contribution$

To sovle for this we use the accouting equation:

assets = laibilities + equity

the beginning and ending equity is the same for all years:

60,000 = 20,000 + equity

equity = 40,000

ending equity: 105,000 - 36,000 = 69,000

what changes is the value for dividend and contribution

a)

income: 69,000 - 40,000 + 0 - 0 = 29,000

b) 69,000 - 40,000 + 1,250 x 12 - 0 = 44,000

c) 69,000 - 40,000 + 0 - 55,000 = -26,000

d) 69,000 - 40,000 + 1,250 x 12 - 35,000 = 9,000