The net income of Hendley Company for the year is $25,000. Withdrawals during the year were $30,000. No new capital contributions were made during the year. Which of the following statements is TRUE?
To determine which statement is true, we need to analyze the financial situation of Hendley Company based on the given information.
First, let's consider the definition of net income and withdrawals:
1. Net Income: Net income represents the total revenue of the company minus all expenses incurred during the year. It is the amount left after deducting all expenses from the company's revenue. In this case, the net income of Hendley Company is $25,000.
2. Withdrawals: Withdrawals refer to the amount of money taken out by the owner(s) or shareholder(s) from the company's retained earnings for personal use. It decreases the company's equity. In this case, the withdrawals during the year were $30,000.
Now, let's evaluate the given statements:
Statement 1: "The company experienced a net loss for the year."
Based on the given information, the net income is $25,000. A positive net income indicates that the company earned more revenue than it incurred in expenses. Therefore, the statement is FALSE.
Statement 2: "The owner(s) made a capital contribution during the year."
The information provided states that no new capital contributions were made during the year. Therefore, the statement is TRUE.
Statement 3: "The company's retained earnings decreased."
Retained earnings are the accumulated profits of a company that are reinvested back into the business. Withdrawals decrease retained earnings, while net income increases them. In this case, the withdrawals ($30,000) were higher than the net income ($25,000). Since withdrawals exceed net income, the retained earnings will decrease. Therefore, the statement is TRUE.
In summary, the TRUE statements are:
- "The owner(s) made a capital contribution during the year."
- "The company's retained earnings decreased."
Please note that this analysis is based solely on the information provided, and additional context may alter the interpretation.