Question

Crowe Company began operations on January 1, Year 1. The company was organized as a sole proprietorship. During Year 1, Crowe acquired $40,000 of capital from John Crowe, the owner. Also, during Year 1 the company earned net income of $20,000 and John Crowe withdrew $15,000 from the business. Based on this information, the Company would show A. $45,000 in its capital account on the Year 1 balance sheet.B. $25,000 in its capital account on the Year 1 balance sheet. C. $40,000 in its capital account on the Year 1 balance sheet. D. $5,000 in its capital account on the Year 1 balance sheet.

Answer 1

Answer:

A. $45,000 in its capital account on the Year 1 balance sheet

Explanation:

The company starts operation on January 1. During the year 1 company acquired capital of $40,000. During the year 1 company earned net income of $20,000 and the owner withdrew $15,000 from the business. Net income should be added and withdrawals should be deducted from the capital acquired by the company. Hence, the capital account balance on the year 1 balance sheet is $45,000.