At the end of its first year of operations, Lockerbie and Role Company has total assets of $3,000,000 and total liabilities of $1,200,000. The owner originally invested $200,000 in the business, but has not made any further investments or taken any withdrawals. What is the first year's profit for Lockerbie and Role Company?
A) $1,600,000
B) $1,800,000
C) $1,000,000
D) $3,000,000
E) $3,200,000

Question

Quizplus · Accepted Answer

The profit can be calculated using the accounting equation: Assets = Liabilities + Owner's Equity. Owner's Equity = Assets - Liabilities = $3,000,000 - $1,200,000 = $1,800,000. Since the owner originally invested $200,000, the profit is $1,800,000 - $200,000 = $1,600,000.

At the End of Its First Year of Operations, Lockerbie