On January 1 2016 Utah Utility Company reported owner's equity of $705000. During the year the owner withdrew cash of $30000. At December 31 2016 the balance in owner's equity was $795000. What amount of net income or net loss would the company report for 2016?

Question

Quizplus · Accepted Answer

To find the net income or net loss, we need to take into account the owner's withdrawals and the change in owner's equity.

Starting owner's equity = $705,000 
Owner's withdrawals = $30,000

Therefore, the initial owner's equity available for the company's operations = $705,000 - $30,000 = $675,000

At the end of the year, the owner's equity balance = $795,000

Therefore, the change in owner's equity = $795,000 - $675,000 = $120,000

This change in owner's equity can be attributed to two factors:

1. Net income or net loss 
2. Any investments made by the owner into the company

Since we know that there were no investments made by the owner into the company, we can safely assume that the entire change in owner's equity is due to the net income or net loss of the company.

Therefore, the net income or net loss = $120,000

Since the owner's equity increased from $705,000 to $795,000, we know that the company made a net income.

Therefore, the answer is C) Net income of $120,000.

On January 1 2016 Utah Utility Company Reported Owner's Equity