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    tpagrl1220's Avatar
    tpagrl1220 Posts: 2, Reputation: 1
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    #1

    Jan 20, 2010, 03:06 PM
    Net income/loss
    I don't want the answer! Just help figuring this out... correct formula, for example.

    The owners equity for the Large Company as of Jan 1, 1985 was $2000. M. Large made no investments and made no withdrawals throughout the entire year. What was his net income or net loss as of Dec 31, 1985?

    My book isn't very helpful in explaining how to calculate this. I was thinking this should be an income statement, but without information about his revenues and expenses, I can't generate an income statement. The only additional information I have is the balance sheet, which says he had $28,000 in assets, $8000 in Accts Pay, and $20,000 in Owners Equity on Dec 31, 1985.

    I would appreciate any kind of help!
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Jan 22, 2010, 11:56 PM

    It's not wanting a statement at all. It just wants you to calculate it.

    Owners Equity is affected by investments, revenues, expenses and drawings. Or, since revenues less expenses equals net income, then you can look at it as investments, net income and drawings.

    Hence:
    Beginning Balance
    +Investments
    + Net Income
    - Drawings
    = Ending Balance

    On this type of problem, you insert what you have available and work towards what you don't have. Using a sub-total in between each one helps a great deal. But for this one, you have no investments and no drawings, so what's the only thing left to affect that account?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #3

    Jan 22, 2010, 11:58 PM

    P.S. that "formula" I gave you is actually what the statement of owner's equity would look like, if they asked for it. They didn't ask for it though.
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