The net income of Hendley Company for the year is $25,000.Withdrawals during the year were $30,000.No new capital contributions were made during the year.Which of the following statements is TRUE?
A) Hendley, Capital account decreases by $25,000.
B) Hendley, Capital account decreases by $5,000.
C) Hendley, Capital account increases by $30,000.
D) Hendley, Capital will remain the same.

Question

Quizplus · Accepted Answer

Withdrawals reduce the owner's capital account, therefore Hendley, Capital account decreases by $30,000. However, since the net income is positive, it partially offsets the decrease in the capital account. Therefore, the overall decrease in the Capital account is $30,000 - $25,000 = $5,000.

The Net Income of Hendley Company for the Year Is