Question

Using the accounting equation Roland’s Overhead Doors reports the following financial information: Assets $ 45,800 Liabilities 17,220 Common Stock 27,460 Dividends 6,500 Revenues 8,850 Expenses ? Requirements 1. Use the accounting equation to solve for the missing information. 2. Did Roland’s Overhead Doors report net income or net loss?

Short answer

(1) Expenses equals $1,230.

(2) Net income of $7,620 will be reported.

Step-by-step solution

Calculation of expense

(1) Expense is calculated as follows by the accounting equation.

Assets	=	Liabilities	+	Equity
				Contributed Capital	+	Retained earnings
				Common Stock	-	Dividends	+	Revenues	-	Expenses
$45,800	=	$17,220	+	$27,460	-	$6,500	+	$8,850	-	?
$45,800	=	$17,220	+	$27,460	-	$6,500	+	$8,850	-	$1,230

Calculation of net income

(2) Net income is calculated as follows:

$$\begin{gathered} \mathbf{NetIncome}\mathbf{=}\mathbf{Revenues}-\mathbf{Expenses} \\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{850}-\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{230} \\ \mathbf{=}\mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{620} \end{gathered}$$