Question

2. Ervin Enterprises began the year with total assets of $450,000 and total liabilities of $213,000. Using this information and the accounting equation, answer each of the following independent questions.

a. What was the amount of Ervin’s owners’ equity at the beginning of the year?

b. If Ervin’s total asset’s increased by $100,000 and its total liabilities increased by $70,000 during the year, what was the amount of Ervin’s owners’ equity at the end of the year?

c. If Ervin’s total asset’s increased by $50,000 and its total liabilities decreased by $30,000 during the year, what was the amount of Ervin’s owners’ equity at the end of the year?

d. If Ervin’s total assets doubled to $900,000 and its owners’ equity remained the same, what was the amount of Ervin’s total liabilities at the end of the year?

Answer 1

Answer

• Basic Accounting Equation: ASSETS = LIABILITIES + OWNER’s EQUITY
• Requirement ‘a’

ASSETS = LIABILITIES + OWNER’s EQUITY

Hence, Owner’s Equity = Assets – Liabilities

= $ 450,000 - $ 213,000
= $ 237,000 = Answer

• Requirement ‘b’

Owner’s Equity = Assets – Liabilities
= (450000 + 100000) – (213000 + 70000)

= 550000 – 283000
= $ 267,000 = Answer

• Requirement ‘c’

Owner’s Equity = Assets – Liabilities
= (450000 + 50000) – (213000 - 30000)
= 500000 – 183000
= $ 317,000 = Answer

• Requirement ‘d’
  ASSETS = LIABILITIES + OWNER’s EQUITY

Hence, Liabilities = Assets – Owner’s Equity

= $ 900,000 – $ 237,000
= $ 663,000 = Answer