During 2012, Smith Corporation had an increase in total assets of $70,000 and an increase in total liabilities of $90,000. Assuming that capital stock increased by $5,000 and no dividends were paid, calculate Smith's net income or net loss for 2012.

Question

Quizplus · Accepted Answer

The accounting equation is Assets = Liabilities + Capital Stock + Retained Earnings.
Based on the information provided, we can set up the following equation:
Beginning Total Assets + Increase in Total Assets = Beginning Total Liabilities + Increase in Total Liabilities + Capital Stock + Net Income/Loss
Let x be the net income/loss for 2012:
$0 + $70,000 = $0 + $90,000 + $5,000 + x
Simplifying the equation, we get:
$70,000 = $95,000 + x
x = -$25,000 (net loss)
Therefore, the answer is C, net loss of $25,000.

During 2012, Smith Corporation Had an Increase in Total Assets