Lily Company had the following assets and liabilities on the dates indicated. De
ID: 2353280 • Letter: L
Question
Lily Company had the following assets and liabilities on the dates indicated.December 31
Total Assets
Total Liabilities
2009 $400,000 $250,000
2010 $460,000 $300,000
2011 $590,000 $400,000
Lily began business on January 1, 2009, with an investment of $100,000.
Instructions
From an analysis of the change in owner's equity during the year, compute the net income (or loss) for the following situations. (If a net loss, record amount using either a negative sign preceding the number eg -45 or parentheses eg (45).)
(a) 2009, assuming Lily's drawings were $15,000 for the year.
$
(b) 2010, assuming Lily made an additional investment of 50,000 and had no drawings in 2010.
$
(c) 2011, assuming Lily made an additional investment of $15,000 and had drawings of $30,000 in 2011.
Explanation / Answer
I'm sure your textbook went over it. Now they just want to see how much you understand it. Basic accounting equation Assets = Liabilities + Equity Net Income, owner investment, and issuing stock increases equity. Net loss, owner withdrawals, and dividends decrease equity. December 31/Total Assets/Total Liabilities 2007/$408,000 = $250,000 + 158,000 (equity) 2008/$480,000 = $302,000 + 178,000 2009/$620,000 = $403,000 + 217,000 (a) 2007, assuming Lily paid $18,000 in dividends for the year. She started with an investment of 112,000, that means equity increased by 46,000. However, dividends of $18,000 were paid. So net income was 46,000 + 18,000 = $64,000. (b) 2008, assuming stockholders made and an additional investment of $54,000 and Lily paid no dividends in 2008. From 2007 to 2008 equity increased by $20,000. However, $54,000 in additional investment were made. So there was a net loss of 54,000 - 20,000 = $34,000. (c) 2009, assuming stockholders made an additional investment of $17,000 and Lily paid dividends of $32,000 in 2009. From 2008 to 2009 equity increased by $39,000. $17,000 was caused by additional investments and there were $32,000 in dividends paid. 39,000 -17,000 + 32,000 = $54,000 Net Income
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