Question

The Accounting Equation Ginger Enterprises began the year with total assets of $505,000 and total liabilities of $227,000. Using this information and the accounting equation, answer each of the following independent questions. 1. What was the amount of Ginger's owners' equity at the beginning of the year? $ 2. If Ginger's total assets increased by $101,000 and its total liabilities increased by $71,000 during the year, what was the amount of Ginger's owners' equity at the end of the year? $ 3. If Ginger's total liabilities decreased by $30,000 and its owners' equity increased by $64,000 during the year, what was the amount of its total assets at the end of the year? $ 4. If Ginger's total assets doubled to $1,010,000 and its owners' equity remained the same during the year, what was the amount of its total liabilities at the end of the year?

Answer 1

Solution

Ginger Enterprises

1. Determination of the amount of Ginger’s owners’ equity at the beginning of the year:

Total assets at the beginning of the year = $505,000

Total liabilities at the beginning of the year = $227,000

As per accounting equation, total assets = total liabilities + owners’ equity

Hence, owners’ equity = total assets – total liabilities

Ginger’s Owners’ equity balance at the beginning of the year = $505,000 - $227,000 = $278,000

2. Determination of the amount of Ginger’s owners’ equity at the end of the year when assets increased by $101,000 and total liabilities increased by $71,000 during the year:

Total assets at the end of the year = $505,000 + $101,000 = $606,000

Total liabilities at the end of the year = $227,000 + $71,000 = $298,000

As per accounting equation, total assets = total liabilities + owners’ equity

Hence, owners’ equity = total assets – total liabilities

Ginger’s Owners’ equity balance at the end of the year = $606,000 - $298,000 = $308,000

3. Determination of the amount of Ginger’s total assets at the end of the year, when total liabilities decreased by $30,000 and owners’ equity increased by $64,000 during the year:

As per accounting equation, total assets = total liabilities + owners’ equity

Ginger’s total liabilities at the end of the year = beg. Balance – decrease during the year

= $227,000 - $30,000 = $197,000

Ginger’s Owners’ equity balance at the end of the year = beg. Balance + increase during the year

= $278,000 + $64,000 = $342,000

Ginger’s total assets at the end of the year = $197,000 + $342,000 = $539,000

4. Determination of Ginger’s total liabilities at the end of the year, when total assets doubled to $1,010,000 and owners’ equity remained the same during the year:

Total assets = total liabilities + owners’ equity

Total assets = $1,010,000

Owners’ equity = $278,000

Total liabilities at the end of the year = $1,010,000 - $278,000 = $732,000