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 with drew $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

The total equity at the end of December 31, 2005 is $640,000.00. To get the net income of the year-end December 31, 2006, you have to deduct Net assets to liabilities and its total equity. To get the total equity: $640,000 (last year) + $50,000 (additional) - $30,000 (withdrawals) = $660,000. To get the amount of net income: $980,000 (asset) - $225,000 (liabilities) - $660,000 (equity) = $95,000. The net income is $95,000.