Question

A corporation had the following assets and liabilities at the beginning and end of this year.

Assets Liabilities
Beginning of the year $57,000 $24,436
End of the year 115,000 46,575
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:
a. b. c. d.
Beginning of the year

Answer 1

The Beginning Equity is: Ending equity is:

= Assets - liabilities = 115,000 - 46,575

= 57,000 - 24,436 = $68,425

= $32,564

a. Net income if no investments:

= Ending equity - beginning equity

= 68,425 - 32,564

= $35,861

b. No investment but dividends were $1,250 per month

= Ending equity - beginning equity + dividends

= 68,425 - 32,564 + (1,250 * 12)

= $50,861

c. Investment of $55,000:

= Ending equity - beginning equity - Equity investment

= 68,425 - 32,564 - 55,000

= -$19,139

d. Dividends of $1,250 per month and Investment of $35,000:

= Ending equity - beginning equity - Equity investment + Dividend

= 68,425 - 32,564 - 35,000 + (1,250 * 12 months)

= $15,861