Question

Jones Company: Analyze the accounting equation for another business, Jones Company. Assume that the assets are $48,000 and the liabilities are $19,200. By rearranging the accounting equation, you determine that owner's equity is $28,000. During the year, the owner invested an additional $4,000 in the business. The company also paid off $2,500 of its debt. What would the accounting equation look like at the end of the year for Jones Company? Enter the updated amounts for Jones' accounting equation below.

Assets	=	Liabilities	+	Owner's Equity
Let’s put all the pieces together now. Suppose that you are analyzing Martin Company. You know that at the beginning of the year, the assets equaled $320,000 and the liabilities equaled $176,000. During the year, assets increased by $48,000 and owner's equity increased by $24,400. The change in owner's equity includes all increases and decreases. Further analysis reveals that the changes in owner's equity were caused by revenues of $223,200 and expenses totaling $112,320 during the year, and additional owner's investments of $50,000 in the first half of the year. Because of your understanding of the accounting equation, you realize that withdrawals by the owner must have also occurred during the year. However, you must  determine the amount for those withdrawals. What is the amount of withdrawals made to the owner of Martin Company during the year? Complete the equation below with amounts for the end of the year. Assets = Liabilities + Owner's Equity The owner's equity component of the accounting equation can be affected by more than owner contributions. Owner's equity increases for revenues earned and decreases for expenses incurred. Also in any form of business, money can be distributed from the business to the owners. Withdrawals (in the form of cash or other assets) by the owner decreases the owner's equity account. Smith Company had transactions affecting owner's equity during the past year. The table below demonstrates the effect of these transactions for Smith Company. Review the details of each transaction and determine the effect on the accounting equation. Then, enter the updated amounts for the assets, liabilities, and owner's equity accounts (do not record the transaction). Enter all amounts as positive numbers. Transaction Assets = Liabilities + Owner's Equity Beginning of the year $320,000 = $96,000 + $224,000 Revenues earned: During the year, Smith Company earned revenues totalling $192,000. The cash has been collected from the customers for all revenues earned this year. $ = $ + $ Expenses incurred: Smith Company incurred expenses totalling $134,400 during that same year. All of the expenses incurred this year were paid in cash. $ = $ + $ Withdrawals: At the end of each quarter, the owner withdraws cash from Smith Company. The sum of those quarterly withdrawals was $5,760. $ = $ + $

Answer 1

• All working forms part of the answer
• Amounts are in $
• Question 1

Transaction	Assets $	=	Liabilities $	+	Owner's Equity $
Given data	48000	=	19200	+	28800
Additional Capital	4000	=	0	+	4000
Debts paid off	(2500)	=	(2500)	+	0
Final Equation	49500	=	16700	+	32800

• Question 2

First find Owner’s Equity in the beginning

Transaction	Assets	=	Liabilities	+	Owner's Equity
Given data	$320000	=	$176000	+	$144000 [320000-176000]

Owners' Equity increased by	$24400
Closing Owner's Equity balance [144000+24400]	$168400

Opening Owners' Equity balance	144000
Add: Revenues	223200
Less: Expenses	112320
Add: Investments	50000
Closing balance	$304880
Closing balance calculated above	168400
Withdrawals made during the year [304880-168400]	$136480

• Question 3

Transaction	Assets $	=	Liabilities $	+	Owner's Equity $
Beginning of the year	320000	=	96000	+	224000
Revenues earned: During the year, Smith Company earned revenues totalling $192,000. The cash has been collected from the customers for all revenues earned this year.	192000	=		+	192000
Expenses incurred: Smith Company incurred expenses totalling $134,400 during that same year. All of the expenses incurred this year were paid in cash.	-134400	=		+	-134400
Withdrawals: At the end of each quarter, the owner withdraws cash from Smith Company. The sum of those quarterly withdrawals was $5,760.	-5760	=		+	-5760
Final Equation	$ 371840	=	$96000	+	$275840