Great City Builders balance sheet data at May 31, 2012, and June 30, 2012, follow:

May 31, 2012
Total assets $177,000
Total liabilities 122,000

June 30, 2012
Total assets $213,000
Total liabilities 144,000

Following are three situations about owner’s investments and drawings of the business during June. For each situation, compute the amount of net income or net loss during June 2012.

a.The owner invested $6,000 in the business and made no withdrawals.

b.The owner made no investments. The owner withdrew cash of $10,000.

c. The company owner made investments of $18,000 and withdrew cash of $20,000.

Seriously, there must be a very low standard in accounting training if students are asked questions like this. The answer is a big fat zero in all instances

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Originally Posted by paraclete

Seriously, there must be a very low standard in accounting training if students are asked questions like this. the answer is a big fat zero in all instances

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Really!
Thanks for the help...

You have to compute the equity amount for the two different dates, then analyze each transaction to deteremine the change in equity and net income.

To figure out the quity amount you simply need to know the basic accounting equation, which is: Assets = Liabilities + Equity. Now you know the basic acocunting equation and you are trying to compute equity you can rewrite the basic accounting equation to: Assets - Liabilities = Equity. Now you know this you can compute the Equity amount for the two different dates. Now subtract the equity on 31 May from the Equity on 30 Jun to get the change amount of Equity. Now you are ready to solve your questions a through c.

a. Simply subtract the amount given from the change in Equity amount to get net income.

b. Simply add the amount given to the change in Equity amount to get net income.

c. Simply subtract the investment amount and add the withdrawal amount from the change in Equity amount to get net income.