Question

At the beginning of October, owners' equity in Waldorf was $480,000. Given the transactions in October 2018, what will be the owners' equity at the end of the month?

Answer 1

Answer:

The question is not complete,find below complete question:

The following information applies to the questions displayed below.

Waldorf Co. had the following transactions during the month of October 2018:

(1) Cash received from bank loans was $60,000.

(2) Dividends of $18,500 were paid to stockholders in cash.

(3) Revenues earned and received in cash amounted to $100,500.

(4) Expenses incurred and paid were $78,000.

At the beginning of October, owners' equity in Waldorf was $480,000. Given the transactions in October 2018, what will be the owners' equity at the end of the month?

A. $502,500.

B. $580,500.

C. $480,000.

D. $484,000.

The correct option is D,$484,000

Explanation:

In order to calculate the closing owners' equity, the retained earnings in the year needs to be ascertained,the retained earnings here is the same as net income:

Revenues earned                    $100,500

Expenses incurred                  ($78,000)

Net income                               $22,500

The closing owners' equity is calculated thus:

Opening owners' equity               $480,000

Add net income                              $22,500

less:dividends                                ($18,500)            

Closing owners' equity                 $484,000

The net income for the adds to owners' equity while dividends reduces it, hence the two figures were added and deducted respectively.

The receipt of cash from loans of $60,000 has impact on cash and long-term liability and none on owners' equity.

Answer 2

Answer:

The Question is incomplete therefore the complete question may be like this;

Waldorf has following transactions in month of October 2018

1) Cash received from bank loans $60,000

2)Dividend paid  to stockholders  of $18,500 in cash

3) Revenue earned and received in cash amounted to $100,500

4) Expenses incurred and paid were $78,000

Now we can solve the question with above additional information;

Explanation:

Owners' Equity at 1st October 2018           $480,000

Dividend Paid                                               ($18,500)

Revenue received                                        $100,500

Expenses paid                                               ($78,000)

Net Owners' Equity at 31st October 2018   $484,000

Owners' equity represents investments made by the owner less any withdrawal made thereof in terms of dividends or drawings. Bank loan is liability which has nothing to do with capital or owners' equity. Therefore the bank loan received is not accounted for here.