Total Assets Total Liabilities
Beginning of the year $ 600,000 $150,000
End of the year 1,125,000 500,000
On the basis of the above data and the following additional information for the year, determine the net income (or loss) of each company for the year. (Hint: First determine the amount of increase or decrease in owner’s equity during the year.)
Juliet: The owner had made no additional investments in the business and had made no withdrawals from the business.
Kilo: The owner had made no additional investments in the business but had withdrawn $55,000.
Lima: The owner had made an additional investment of $100,000 but had made no withdrawals.
Mike: The owner had made an additional investment of $100,000 and had withdrawn $55,000.
Answer:
Juliet Owner's equity at end of year ($1,125,000 – $500,000)……………………………… $625,000 Deduct owner's equity at beginning of year ($600,000 – $150,000)………………… 450,000 Net income (increase in owner’s equity)…………………………………………… $175,000 Kilo Increase in owner’s equity (as determined for Juliet)……………………………… $175,000 Add withdrawals……………………………………………………………………………… 55,000 Net income………………………………………………………………………………… $230,000 Lima Increase in owner’s equity (as determined for Juliet)……………………………… $175,000 Deduct additional investment……………………………………………………………… 100,000 Net income………………………………………………………………………………… $ 75,000 Mike Increase in owner’s equity (as determined for Juliet)……………………………… $175,000 Deduct additional investment……………………………………………………………… 100,000 $ 75,000 Add withdrawals……………………………………………………………………………… 55,000 Net income………………………………………………………………………………… $130,000