Here is the problem: I have tried to find the solution but what I do not get is how I am supposed to find the net income when I do not know the revenue and expenses?

The total assets and the total liabilities of a business at the beginning of the year and the end of the year are below. During the year the owner had made an investment of 14,000 and a withdraw for 23,000 for personal use.

Assets = Liabilities + Owner Equity

Beginning 395,000 190,000 X


investments X X X


Withdrawals X X X


Net Income X X X


End 555,000 320,000 X


The amount of the net income or loss for the year was:
A. net income, 21,000
B. net loss 7,000
C. net income 67,000
D. net income 39,000

This problem illustrates how accounting financial statements are interrelated. Income made by a company increases the owner(s) share of the company. Remember net income is a component of owner's equity.

Looking at the information given, you would solve you problem as follows:

A = L + OE

Beginning:
395 = 190 + OE

OE = 205

Ending:
555 = 320 + OE

OE = 235



The change in owner's equity during the period relates to net income earned during the period, additional capital contributions, and capital withdrawals (typically dividends paid to the owners).

Your problem notes that an additional 14 was contributed and 23 was withdrawn. Using simple math, you can solve for the remainder which must relate to net income for the period.

205
+14
-23
+Net Income
=235

Net Income = 39. Answer D.

Hi Adam UTsel,
I was just going to move on to my next exam question, but before I did I felt very compelled to say thank you for your response and analyis on the above problem. I had a very similar problem on my Accounting exam and for the life of me could not figure it out from the explanations in the textbook and your explanation helped to get the exam question right! Gracias!

4. Changes in account balances of Multi-Plus Inc. during 2010 were:

Increase
Assets $420,000
Liabilities 125,000
Capital Stock 100,000
Additional Paid-In Capital 140,000
Retained Earnings ?

Assuming that there were no charges to retained earnings other than dividends of $62,000, the net income for 2010 was:
a. ($7,000)
b. $55,000
c. $117,000
d. $257,000
e. none of the answers are correct