Question

Net income (or net loss) during 20y2, assuming that as of december 31, 20y2, assets were $861,240, liabilities were $140,120, and there were no additional investments or withdrawals.

Answer 1

The net income for the year 20y2 can be found by subtracting the liabilities ($140,120) from the assets ($861,240), which equals $721,120. This represents the net income for the year, assuming there were no additional investments or withdrawals.

Step-by-step explanation:

To calculate the net income or net loss for the year 20y2, we can employ the accounting equation, which states that assets equals liabilities plus owner's equity. Given the assets of $861,240 and liabilities of $140,120, we can deduce the owner's equity at the end of 20y2. Since there were no additional investments or withdrawals, any change in the owner's equity from the beginning to the end of the year represents the net income or net loss.

Using the formula:

Owner's Equity = Assets - Liabilities

Owner's Equity = $861,240 - $140,120 = $721,120

This amount represents the owner's equity at the end of 20y2, which, in the absence of any contributions or withdrawals by the owner, is equivalent to the net income for the year.

The net worth of a bank or any business is calculated in a similar fashion, by subtracting total liabilities from total assets. A positive net worth indicates financial health, while a negative net worth can signal financial difficulties that may prevent the firm from meeting its obligations, as in the case where bank depositors might not be able to withdraw their funds if the bank has a negative net worth.