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Chapter 1: Q. 6SE (page 33)

Using the accounting equation Thompson Handyman Services has total assets for the year of \(18,400 and total liabilities of \)9,050. Requirements 1. Use the accounting equation to solve for equity. 2. If next year assets increased by \(4,300 and equity decreased by \)3,850, what would be the amount of total liabilities for Thompson Handyman Services?

Short Answer

Expert verified

(1) Equity equals $9,350.

(2) Total liabilities equals $17,200

Step by step solution

01

Calculation of equity

Equity is calculated as follows by the accounting equation.

Assets=Liablities+Equity
$18,400=$9,050+?
$18,400=$9,050+$9,350

Note: Equity is $9,350 ($18,400-$9,050).

02

Calculation of total liabilities

Total liabilities is calculated as follows by the accounting equation.

Assets
=Liabilities+Equity
$18,400=$9,050+$9,350
$22,700=
?+
$5,500
$22,700=
$17,200+
$5,500

Note: Total liabilities is $17,200 ($22,700-$5500).

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Most popular questions from this chapter

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Consider the following accounting terms and definitions, and match each term to the definition:

1. Sole proprietorship

2. Faithful representation

3. Partnership

4. IFRS

5. Corporation

6. Audit

a. Set of global accounting guidelines, formulated by

the IASB

b. Holds that fair market value should not be used

over actual costs

c. Stands for Financial Accounting Standards Board

d. Owner is referred to as a proprietor

e. Asserts that accounting information should be

complete, neutral, and free from material error

7. Cost principle

8. FASB

9. Creditors

10. SEC

f. An examination of a company鈥檚 financial statements

and records

g. Has two or more owners (called partners)

h. U.S. governmental agency that oversees the U.S.

financial markets

i. Type of entity that is designed to limit personal

liability exposure of owners to the entity鈥檚 debts

j. Person or business lending money

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