Question

Hi,

I am having difficulty with an online class and I am stuck on this problem.

Let’s put all the pieces together now. Suppose that you are analyzing Martin Company. You know that at the beginning of the year, the assets equaled $310,000 and the liabilities equaled $170,500. During the year, assets increased by $46,500 and owner's equity increased by $22,875. The change in owner's equity includes all increases and decreases. Further analysis reveals that the changes in owner's equity were caused by revenues of $216,225 and expenses totaling $108,810 during the year, and additional owner's investments of $49,200 in the first half of the year. Because of your understanding of the accounting equation, you realize that withdrawals by the owner must have also occurred during the year. However, you must determine the amount for those withdrawals. What is the amount of withdrawals made to the owner of Martin Company during the year?

Answer 1

Answer

• Working forms part of the answer
• See, in order to calculate the amount of withdrawals from owner’s equity, we need to take help of accounting equation which is Asset = Liabilities+Owners’Equity
• Now we first need to know the opening balance of Owner’s Equity, which ic found by Accounting equation as---

310000 – 170500 = $139500

	Assets	=	Liabilities	+	Owner's Equity
Given data	$310000	=	$170500	+	$139500

• Now, we have opening balance, and also we know how much owner’s equity has increased during the year. We now calculate the ending balance of Owners’ Equity as----

Owner's Equity opening balance-calculated above	$139500
Owners' Equity increased by-given in question	$22875
Closing Owner's Equity balance [139500+22875]	$162375

• We also the adjustment required on Opening balance of Owner’s Equity. After doing those adjustments, the closing value should be equal to $162375. If it didn’t equals to that, the balancing amount will be the amount of Withdrawls during the year.

Opening Owners' Equity balance	$139500
Add: Revenues	$216225
Less: Expenses	$108810
Add: Investments	$49200
Closing balance	$296115
Closing balance calculated above	$162375
Difference=Withdrawals made during the year	$133740