Abbie Marson is the sole owner and operator of Great Plains Company. As of the end of its accounting period, December 31, Year 1, Great Plains Company has assets of $910,049 and liabilities of $274,794. During Year 2, Marson invested an additional $28,651 and withdrew $25,020 from the business. What is the amount of net income during Year 2, assuming that as of December 31, Year 2, assets were $988,160 and liabilities were $234,792?

$114,482

Explanation:

The accounting equation shows the relationship between the various elements of the balance sheet. These are the assets, liabilities and equity. It may be expressed mathematically as

Assets = Liabilities + Equity

As such, for  Great Plains Company as at December 31, Year 1

Equity = $910,049 - $274,794

= $635,255

As at December 31, Year 2

Equity = $988,160 - $234,792

= $753,368

Change in equity between year 1 and 2

= $753,368  - $635,255

= $118,113

This difference or change in equity between December 31, year 1 and 2 is as a result of the following;

As such,

$118,113 = $28,651 - $25,020 + net income

Net income = $118,113 - $28,651 + $25,020

= $114,482

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