Calculation of net profit by analyzing changes to assets and liabilities.

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ABC Company reports the following balance sheet information for 1997:

1 January 1997
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Assets: $60,000
Liabilities: $12,000

31 December 1997
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Assets: $70,000
Liabilities: $14,000

Assume that new investments made by owners during 1997 were $3,000 and that withdrawals were $12,000. Find the net profit for 1997.

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Solution Preview

Step 1
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Calculate owner's equity at 1 Jan 1997

Assets = Owner's Equity + Liabilities
OE = A - L
OE = $60,000 ...

Solution Summary

The solution explains the calculations that are needed to derive net income, and shows the answer computed.

$2.49