Question

Given the following information, determine net income. The capital balance on January 1, 20Y6, equals $25,000; investments and withdrawals during 20Y6 total $53,000 and $28,350, respectively; and the capital balance at December 31, 20Y6, equals $64,850.

Answer 1

Answer:

Net income for the year $ 15,200

Explanation:

We need to make a schedule of changes in Capital to arrive at the net income.

Opening Balance Capital                                          $ 25,000

Add: Investments during the year                            $ 53,000

Less: Withdrawals during the year                           ($ 28,350)

Ending balance after movements                            $49,650  

The net income for the year adds ro the Capital Account, so since the given Capital account balance on December 31 is $ 64,850, the balancing figure between the year end balance and the adjusted balance in the capital account represents the net income for the year.

Ending balance Capital account - Adjusted opening balance = Net Income for the year

$ 64,850 - $ 49,650 = $ 15,200 equals net income for the year