The assets of Frank's business increased by $40 000 and the liabilities increased by $10 000 during the current year. If the profit for this period was $25 000, what additional contribution or withdrawal was made by the owner? (Assume only a withdrawal or a contribution was made.)
A) Drawings $10 000
B) Contribution $10 000
C) Contribution $5000
D) Drawings $5000

Question

Quizplus · Accepted Answer

The increase in assets is $40,000 and the increase in liabilities is $10,000. The total increase in equity is $40,000 - $10,000 = $30,000. The profit for the period is $25,000. Therefore, the additional contribution or withdrawal is $30,000 - $25,000 = $5,000. Since the assets increased, the liabilities increased, and the profit is positive, the additional contribution must have been made by the owner.

The Assets of Frank's Business Increased by $40 000 and the Liabilities