Question

Sales for the year are $100,000. Expenses total $70,000 and there is a distribution of profit to owners of $5,000. Based on this list we know that

X: Profit for the year is $25,000

Y: Equity has increased by $25,000

A. X
B. Y
C. both X and Y
D. neither X nor Y

Answer 1

B. Y

Step-by-step explanation:

Equity is the shareholder's wealth in a business. It is the remainder of subtracting liabilities from assets.

Equity is made up of the shareholder contribution plus retained earnings.

For the current financial year, the retained earnings will be calculated by subtracting dividends and expenses for the revenue.

Retained earning = $100,000 - $70,000 -$5,000

Retained earnings= $25,000

Equity has increased by $25,000