Question

Al Shea is the sole owner and operator of Saw Tooth Company. At the end of its accounting period, December 31, 2005, SawTooth Company has assets of $925,000 and liabilities of $285,000. During 2006, Al Shea invested an additional $50,000 and withdrew $30,000 from the business. What is the amount of net income during 2006, assuming that as of December 31, 2006 net assets were $980,000 and liabilities were $225,000?

Answer 1

amount of net income during 2006 is $65000

Explanation:

Given data

assets in 2005 = $925,000

liabilities in 2005 = $285,000

invested an additional $50,000

withdrew $30,000

assets in 2006= $980,000

and liabilities in 2006 = $225,000?

to find out

amount of net income during 2006

solution

in 2005

assets = $925,000

liabilities = $285,000

so stock holder equity = $640000

and in 2006

assets = $980,000

and liabilities = $225,000

so stock holder equity = $725000

so retaining earning for both year is $725000 - $640000 i.e $85000

so net income = retaining earning + withdrew - investment

net income = $85000 + $30,000 - $50,000

net income = $65000

amount of net income during 2006 is $65000