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Becker question about withdrawals - FAR 2

far withdrawals becker

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#1 paolacpa

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Posted 25 July 2013 - 05:10 PM

On April 1, Year 1, Ivy began operating a service proprietorship with an initial cash investment of $1,000. The proprietorship provided $3,200 of services in April and received full payment in May. The proprietorship incurred expenses of $1,500 in April, which were paid in June. During May, Ivy drew $500 against her capital account.

What was the proprietorship's income for the two months ended May 31, Year 1, under the following methods of accounting?

    Cash-Basis Accrual-Basis a.

$1,200

$1,200

b.

$2,700

$1,200

c.

$3,200

$1,700

d.

$1,700

$1,700

 

 

They said the answer is C. I thought that when there is a withdrawal, it is a reduction in the capital account of the owner so therefore it would be 1,200. Why isn't it subtracted?

 

Thanks!

 

Paola



#2 Hawkeye06

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Posted 28 July 2013 - 09:06 PM

The question refers to what is the proprietorship's income for the 2 months.  The withdrawal of 500 against the capital account is a balance sheet transaction and will not have any impact on the Income.



#3 paolacpa

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Posted 05 August 2013 - 02:03 PM

The question refers to what is the proprietorship's income for the 2 months.  The withdrawal of 500 against the capital account is a balance sheet transaction and will not have any impact on the Income.

 

Ooohh got it!

 

Thanks Hawkeye06







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