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26 December, 22:02

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?

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  1. 26 December, 23:39
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    The net income for Year 2 is $ 114,482

    Explanation:

    Accounting Equation is used in order to calculate the closing capital figure of Year 1 and Year 2:

    Assets=Liabilities + Equity.

    we can rearrange the formula as Assets-Liabilities = Equity

    So in Year 1. the closing capital is: $910,049-$274,794 = $635,255. In Year 2. the closing capital is : $988,160-$234,792 = $ 753,368

    Now we can construct an equation to drive net income of year to by means of balancing figure:

    Opening capital year 1: $635,255

    + Additional Capital in Year 2: $28,651

    -Drawing in year 2: $ (25,020)

    Net Income (Balancing figure) $114,482

    Closing Capital Year 2: $ 753,368
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