Questions: a. Total assets of Charter Company equal 900,000 and its equity is 520,000. What is the amount of its liabilities? b. Total assets of Martin Marine equal 700,000 and its liabilities and equity amounts are equal to each other. What is the amount of its liabilities? What is the amount of its equity?

a. Total assets of Charter Company equal 900,000 and its equity is 520,000. What is the amount of its liabilities?
b. Total assets of Martin Marine equal 700,000 and its liabilities and equity amounts are equal to each other. What is the amount of its liabilities? What is the amount of its equity?

Transcript text: a. Total assets of Charter Company equal $\$ 900,000$ and its equity is $\$ 520,000$. What is the amount of its liabilities? b. Total assets of Martin Marine equal $\$ 700,000$ and its liabilities and equity amounts are equal to each other. What is the amount of its liabilities? What is the amount of its equity?

Solution

Solution Steps

Step 1: Understand the accounting equation

The accounting equation is: \[ \text{Assets} = \text{Liabilities} + \text{Equity} \] This equation must always hold true for any company.

Step 2: Solve for liabilities in part (a)

Given:

Total assets = \$900,000
Equity = \$520,000

Using the accounting equation: \[ \text{Liabilities} = \text{Assets} - \text{Equity} \] Substitute the given values: \[ \text{Liabilities} = 900,000 - 520,000 = 380,000 \]

Step 3: Solve for liabilities and equity in part (b)

Given:

Total assets = \$700,000
Liabilities and equity are equal to each other.

Let $ L $ represent liabilities and $ E $ represent equity. Since $ L = E $, the accounting equation becomes: \[ \text{Assets} = L + E \] Substitute $ L = E $ and the given assets: \[ 700,000 = L + L = 2L \] Solve for $ L $: \[ L = \frac{700,000}{2} = 350,000 \] Since $ L = E $, equity is also: \[ E = 350,000 \]