The assets of Mitchell's business increased by $60 000 and the liabilities increased by $20 000 during the current year. If the profit for this period was $48 000, what additional contribution or withdrawal was made by the owner? (Assume only a withdrawal or a contribution was made.)
A) Drawings $12 000
B) Contribution $12 000
C) Contribution $8000
D) Drawings $8000

Question

Quizplus · Accepted Answer

We know that:
Assets increased by 60,000
Liabilities increased by 20,000
Profit is 48,000

We can conclude that:
Owner's Equity increased by (60,000 - 20,000 - 48,000) = $-8,000

This means that the owner either made a withdrawal of $8,000 or a contribution of $8,000 to end up with a negative change in equity.

Therefore, the answer is option (D) Drawings $8000 as this represents a withdrawal by the owner.

The Assets of Mitchell's Business Increased by $60 000 and the Liabilities