At the end of its first year of operations, shapiro's consulting services reported net income of $27,000. they also had account

Question

2 months ago

12

At the end of its first year of operations, shapiro's consulting services reported net income of $27,000. they also had account

balances of: cash, $16,000; office supplies, $3,200; equipment, $24,000 and accounts receivable, $8,000. the owner's total investment for this first year was $15,000 and the owner withdrew $2,000 for personal use. what are the total liabilities of shapiro's consulting services at the end of the first year of operations?

Business

1 answer:

Nady [3.6K] · Answer 1 · 2026-03-01T20:25:52+03:00

Response: $11,200

Justification:

Utilizing the accounting equation:

(Total Assets) = (Total Liabilities) + (Total Capital)

Thus,

(Total Liabilities) = (Total Assets) - (Total Capital) (1)

To determine total liabilities, we first need to ascertain total assets and total capital.

At the end of the first year, the assets of Shapiro's consulting services are as follows:

Cash: $16,000
Office Supplies: $3,200
Equipment: $24,000
Accounts Receivable: $8,000
TOTAL ASSETS $51,200

Note that total assets are calculated by summing the values of each asset above.

Net income represents an increase (or decrease if it's a loss) in capital, thus we classify it as part of capital. Specifically, net income at the end of the first year adds to the initial capital.

The owner's withdrawal also decreases the capital.

Consequently, total capital at the end of the first year is computed as:

Capital (beginning of the year): $15,000
Net Income (end of year): $27,000
Withdrawal Amount: ($2,000)
TOTAL CAPITAL: $40,000

Note: The notation ($2,000) indicates a deduction of $2,000 in accounting terms.

Using (1), total liabilities at the end of the first year can be calculated as

(Total Liabilities) = (Total Assets) - (Total Capital)
= $51,200 - $40,000
Total Liabilities = $11,200