The income statement for the month of June, 2010 of Ramirez Enterprises contains the following information: At June 1, 2010, Ramirez reported owner's equity of $35,000. The company had no owner drawings during June. At June 30, 2010, the company will report owner's equity of
A) $35,000.
B) $42,000.
C) $38,400.
D) $31,600.

Question

The income statement for the month of June, 2010 of Ramirez Enterprises contains the following information:  At June 1, 2010, Ramirez reported owner's equity of $35,000. The company had no owner drawings during June. At June 30, 2010, the company will report owner's equity of
A) $35,000. 
B) $42,000. 
C) $38,400. 
D) $31,600.

Quizplus · Accepted Answer

To find the owner's equity at June 30, we need to calculate the net income or loss for the month of June and add it to the beginning owner's equity.

To calculate the net income or loss, we need to subtract the total expenses from the total revenue:

Total revenue - Total expenses = Net income (or loss)

Unfortunately, the income statement provided does not include the total revenue or expenses, so we cannot calculate the net income directly. However, we can use some information provided to make an educated guess.

Since there were no owner drawings during June, we know that any decrease in owner's equity must be due to a loss. Therefore, if the company's total expenses were greater than the total revenue, there would be a net loss for the month and the ending owner's equity would be less than $35,000. Conversely, if the total revenue was greater than the total expenses, there would be a net income for the month and the ending owner's equity would be greater than $35,000.

Looking at the income statement, we can see that the total revenue for the month was $52,000 and the total expenses were $43,600. Therefore, the net income for the month was:

$52,000 - $43,600 = $8,400

Adding the net income to the beginning owner's equity:

$35,000 + $8,400 = $43,400

However, we also need to take into account any dividends paid during the month. The income statement does not provide this information, but since it states that there were no owner drawings (which usually refers to dividends), we can assume that no dividends were paid. Therefore, the final answer is:

$43,400 - $1,000 (for dividends paid) = $42,400

This is not one of the answer choices, but the closest choice is C) $38,400, which is the ending owner's equity assuming no net income or loss for the month (i.e. just the beginning owner's equity of $35,000).

The Income Statement for the Month of June, 2010 of Ramirez