Freeman Heyward Jones Ramirez
Beginning of the year:
Assets$ 900,000 $490,000 $115,000 (d)
Liabilities360,000 260,000 81,000 $120,000
End of the year:
Assets1,260,000 675,000 100,000 270,000
Liabilities330,000 220,000 80,000 136,000
During the year:
Additional investment in the business (a) 150,000 10,000 55,000
Withdrawals from the business 75,000 32,000 (c) 39,000
Revenue570,000 (b) 115,000 115,000
Expenses240,000 128,000 122,500 128,000
Determine the missing amounts, identifying them by letter. (Hint: First, determine the amount of increase or decrease in owner’s equity during the year.)
Answers:
In each case, solve for a single unknown, using the following equation:
Owner’s Equity (beginning) + Investments – Withdrawals + Revenues – Expenses
= Owner’s Equity (ending)
Freeman
Owner’s equity at end of year ($1,260,000 – $330,000).................. $930,000
Owner’s equity at beginning of year ($900,000 – $360,000)............ 540,000
Increase in owner’s equity......................................................... $390,000
Deduct increase due to net income ($570,000 – $240,000)............ 330,000
Increase due to additional investment less withdrawals............... $ 60,000
Add withdrawals...................................................................... 75,000
Additional investment in the business.................................... (a) $135,000
Heyward
Owner’s equity at end of year ($675,000 – $220,000)..................... $455,000
Owner’s equity at beginning of year ($490,000 – $260,000)............ 230,000
Increase in owner’s equity......................................................... $225,000
Add withdrawals...................................................................... 32,000
Increase due to additional investment and net income.................. $257,000
Deduct additional investment................................................... 150,000
Increase due to net income...................................................... $107,000
Add expenses......................................................................... 128,000
Revenue...............................................................................(b) $235,000
Jones
Owner’s equity at end of year ($100,000 – $80,000)........................ $ 20,000
Owner’s equity at beginning of year ($115,000 – $81,000)............... 34,000
Decrease in owner’s equity...................................................... $(14,000)
Add decrease due to net loss ($115,000 – $122,500)..................... (7,500)
Decrease due to withdrawals less additional investment............... $ (6,500)
Deduct additional investment................................................... 10,000
Withdrawals from the business............................................. (c) $(16,500)
Ramirez
Owner’s equity at end of year ($270,000 – $136,000)..................... $134,000
Add decrease due to net loss ($115,000 – $128,000)..................... 13,000
Add withdrawals...................................................................... 39,000
Beginning owner’s equity plus additional investment .................. $186,000
Deduct additional investment................................................... 55,000
Owner’s equity at beginning of year.......................................... $131,000
Add liabilities at beginning of year............................................. 120,000
Assets at beginning of year................................................... (d) $251,000