Before you begin:For purposes of testing and exams it's important to make sure you not only get the questions right but are completing them at the right speed. Use a watch or clock to time yourself for this exercise.
Difficulty Rating: Beginner --> Intermediate
Time limit: 10 minutes
The summaries of balance sheet and income statement data follow.
Beginning of year: Total assets $85,000 Total liabilities $62,000 Total owner’s equity ?
End of year: Total assets $110,000 Total liabilities ? Total owner’s equity $60,000
Changes during year in owner’s equity: Investments by owner ? Drawings $18,000 Total revenues $175,000 Total expenses $140,000
For this final part of the question we need to use the calculation of owner’s equity at the end of the year starting with equity at the beginning of the year plus/minus changes during the year in order to work out the capital investment during the year. Or in simpler terms, reconstruct the statement of owner's equity.
Opening Balance $23,000 Investments by owner ? Drawings - $18,000 Total revenues + $175,000 Total expenses - $140,000 Closing Balance $60,000
To solve this problem we're going to take the statement of owner's equity with all the figures above and put them in a formula: