In the current year the Budget Hotel earned $60,000 profit. Its assets increased by $120,000 and its liabilities increased by $40,000. What was the value of the owners' capital contribution or dividend received during the year?

Question

Quizplus · Accepted Answer

According to the basic accounting equation, assets = liabilities + owners' equity. Therefore, the change in owners' equity can be calculated as follows:
change in owners' equity = change in assets - change in liabilities
= $120,000 - $40,000
= $80,000
This indicates that owners' equity increased by $80,000 during the year. Since the hotel earned a profit of $60,000, the remaining $20,000 must have been contributed by the owners as capital. Therefore, the answer is choice B) Contribution of $20,000.

In the Current Year the Budget Hotel Earned $60,000 Profit