Question 1.2: Accounting Equation John Joos is the owner and operator of Y......
Accounting Equation
John Joos is the owner and operator of You’re A Star, a motivational consulting business. At the end of its accounting period, December 31, 2011, You’re A Star has assets of $800,000 and liabilities of $350,000. Using the accounting equation, determine the following amounts:
a. Owner’s equity, as of December 31, 2011.
b. Owner’s equity, as of December 31, 2012, assuming that assets increased by $130,000 and liabilities decreased by
$25,000 during 2012.
a. Assets = Liabilities + Owner’s Equity
$800,000 = $350,000 + Owner’s Equity
Owner’s Equity = $450,000
b. First, determine the change in Owner’s Equity during 2012 as follows:
Assets = Liabilities + Owner’s Equity
$130,000 = – $25,000 + Owner’s Equity
Owner’s Equity = $155,000
Next, add the change in Owner’s Equity on December 31, 2011, to arrive at Owner’s Equity on December 31, 2012, as shown below.
Owner’s Equity on December 31, 2012 = $605,000 = $450,000 + $155,000