Asked by Adison Evans on Jun 07, 2024
Verified
On January 1 2016 Utah Utility Company reported owner's equity of $705000. During the year the owner withdrew cash of $30000. At December 31 2016 the balance in owner's equity was $795000. What amount of net income or net loss would the company report for 2016?
A) Net loss of $60000
B) Net income of $90000
C) Net income of $120000
D) Net income of $150000
Owner's Equity
Owner's Equity represents the residual interest in the assets of a business after deducting liabilities, essentially the owner's claim on the company's assets.
Net Income
The financial gain a company achieves once all expenses, taxes, and other costs are subtracted from the total sales.
Owner Withdraw
The process by which the owner of a business takes out funds from the business for personal use.
- Attain expertise in determining net income or net loss using specific financial information.
- Gain an understanding of the influence transactions have on owner's equity and the company's financial condition.
Verified Answer
FK
Faisal KayaniJun 11, 2024
Final Answer :
C
Explanation :
To find the net income or net loss, we need to take into account the owner's withdrawals and the change in owner's equity.
Starting owner's equity = $705,000
Owner's withdrawals = $30,000
Therefore, the initial owner's equity available for the company's operations = $705,000 - $30,000 = $675,000
At the end of the year, the owner's equity balance = $795,000
Therefore, the change in owner's equity = $795,000 - $675,000 = $120,000
This change in owner's equity can be attributed to two factors:
1. Net income or net loss
2. Any investments made by the owner into the company
Since we know that there were no investments made by the owner into the company, we can safely assume that the entire change in owner's equity is due to the net income or net loss of the company.
Therefore, the net income or net loss = $120,000
Since the owner's equity increased from $705,000 to $795,000, we know that the company made a net income.
Therefore, the answer is C) Net income of $120,000.
Starting owner's equity = $705,000
Owner's withdrawals = $30,000
Therefore, the initial owner's equity available for the company's operations = $705,000 - $30,000 = $675,000
At the end of the year, the owner's equity balance = $795,000
Therefore, the change in owner's equity = $795,000 - $675,000 = $120,000
This change in owner's equity can be attributed to two factors:
1. Net income or net loss
2. Any investments made by the owner into the company
Since we know that there were no investments made by the owner into the company, we can safely assume that the entire change in owner's equity is due to the net income or net loss of the company.
Therefore, the net income or net loss = $120,000
Since the owner's equity increased from $705,000 to $795,000, we know that the company made a net income.
Therefore, the answer is C) Net income of $120,000.
Learning Objectives
- Attain expertise in determining net income or net loss using specific financial information.
- Gain an understanding of the influence transactions have on owner's equity and the company's financial condition.