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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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