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 $1,400 cash per month.
c. No dividends were paid during the year, but the owner did invest an additional $45,000 cash in exchange for common stock.
d. Dividends were $1,400 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.

Answer 1

Answer and Explanation:

The computation of the net income earned or net loss incurred is shown below

Particulars a b c d

Equity beginning $32,564 $32,564 $32,564 $32,564

balance

Add:

Owner investment $45,000 $35,000

Less:

Dividend $16,800 $16,800

Add: Net income $35,861 $52,661

or net loss ($9,139) $17,661

Equity ending

balance $68,425 $68,425 $68,425 $68,425

Working notes

The beginning and ending equity balance is

Beginning equity balance is

= Total assets beginning - total liabilities beginning

= $57,000 - $24,436

= $32,564

Ending equity balance is

= Total assets ending - total liabilities ending

= $115,000 - $46,575

= $68,425

The annual year dividend is

= $1,400 × 12 months

= $16,800