The assets of Quinn's business increased by $40 000 and the liabilities increased by $5000 during the current year.If the profit for this period was $25 000,what additional contribution or withdrawal was made by the owner? Assume only a withdrawal or a contribution was made.

Question

Quizplus · Accepted Answer

We know that:
Assets increase = Liabilities increase + Owner's Equity increase
or
Owner's Equity increase = Assets increase - Liabilities increase

Substituting the values given:
Owner's Equity increase = $40,000 - $5,000
Owner's Equity increase = $35,000

We can now use the accounting equation to find the change in Owner's Equity:
Assets = Liabilities + Owner's Equity

Initially:
Assets = Liabilities + Owner's Equity
Let's assume the initial Owner's Equity was OE.
Assets = Liabilities + OE

Finally:
Assets = Liabilities + (OE + $35,000)
As the profit for the period was $25,000, we can find the contribution or withdrawal by the owner:
OE + $35,000 - Drawings = OE + $25,000

Solving for Drawings:
Drawings = OE + $35,000 - OE - $25,000
Drawings = $10,000

Therefore, the additional contribution or withdrawal made by the owner was a contribution of $10,000 (Option B).

The Assets of Quinn's Business Increased by $40 000 and the Liabilities