Question

Mahomes Company reported the following data at the end of its first year of operations on December 31.

Cash
Accounts receivable
Equipment
Land
Accounts payable
Owner investments
Mahomes, Withdrawals
Net income
$ 13,500
14,500
16,500
56,500
10,500
52,500
29,500
67,500
(a) Prepare its year-end statement of owner's equity. Hint. Mahomes, Capital on January 1 was $0.
(b) Prepare its year-end balance sheet, using owner's capital calculated in part a.

Answer 1

a) The year-end statement of owner's equity for Mahomes Company would be as follows:

Mahomes, Capital:

January 1: $0

Add: Owner investments: 52,500

Total: $52,500

Less: Withdrawals: 29,500

Mahomes, Capital: December 31: $23,000

b) The year-end balance sheet for Mahomes Company would be as follows:

Assets:

Cash: $13,500

Accounts receivable: 14,500

Equipment: 16,500

Land: 56,500

Total assets: $101,000

Liabilities and Owner's Equity:

Accounts payable: $10,500

Mahomes, Capital: $23,000

Total liabilities and owner's equity: $101,000

This balance sheet shows the company's financial position at the end of the year, with assets on one side and liabilities and owner's equity on the other side. The assets and liabilities must balance, with the total assets equaling the total liabilities and owner's equity. The statement of owner's equity shows the changes in the owner's capital over the year, and how it was affected by investments and withdrawals.