Question

December 31 Total assets Total liabilities

2019 $458,000 $317,000
2020 538,000 367,000
2021 668,000 467,000

Hawke began business on January 1, 2019, with an investment of $100,000. From an analysis of the change in owner’s equity during the year, compute the net income (or loss) for:

(a) 2019, assuming Hawke’s drawings were $12,000 for the year.
(b) 2020, assuming Hawke made an additional investment of $34,000 and had no drawings in 2020.
(c) 2021, assuming Hawke made an additional investment of $12,000 and had drawings of $25,000 in 2021.

Answer 1

Net Income or Loss : a. 2019 = $53000 ; b. 2020 = $4000 loss ; c. 2021 = $43000

Step-by-step explanation:

Assets - Liabilities = Capital (Closing/Opening)

458000 - 317000 = 141000 (2019 Closing Capital)

Profit = Closing Capital - Opening Capital + Drawings - Additional Capital

A. 2019 Opening Capital = 100000 (Given)

2019 Closing Capital = A - L = 458000 - 317000 = 141000

2019 Profit = CC - OC - D + AC = 141000 - 100000 + 12000 = 53000

B. 2020 opening capital = 2019 Closing Capital = 141000

2020 closing capital = A - L = 538000 - 367000 = 171000

2020 Profit = CC - OC + D - AC = 171000 - 141000 - 34000 = 4000 Loss

C. 2021 opening capital = 2020 closing capital = 171000

2021 closing capital = A - L = 668000 - 467000 = 201000

2021 Profit = CC - OC + D - AC = 201000 - 171000 + 25000 - 12000 = 43000