Question

On January 1 of the current year, Bob's Lawn Care Service reported owner's capital totaling $122,500. During the current year, total revenues were $96,000 while total expenses were $85,500. Also, during the current year Bob withdrew $20,000 from the company. No other changes in equity occurred during the year. If, on December 31 of the current year, total assets are $196,000, the change in owner's capital during the year was:
A. A decrease of $9,500.
B. An increase of $9,500.
C. An increase of $30,500.
D. A decrease of $30,500.
E. Impossible to determine from the information provided.

Answer 1

Answer:

Option (A) is correct.

Explanation:

Revenue = $96,000

expenses = $85,500

Net income:

= Revenue - expenses

= $96,000 - $85,500

= $10,500

withdrawal = 20,000

Net decrease equity:

= Net income - withdrawal

= $10,500  - $20,000

= $9,500

Hence,

Equity at end of year = $122,500 - $9,500

                                   = $113,000