Beginning 2019, assets $800,000 and liabilities $185,000. If assets decrease $52,000 and liabilities increase $24,000 during 2020, what is equity at end of 2020?

Beginning 2019, assets $800,000 and liabilities $185,000. If assets decrease $52,000 and liabilities increase $24,000 during 2020, what is equity at end of 2020?

• A. 615,000
• B. 487,000
• C. 700,000
• D. 539,000

Answer: (D)

Equity is what remains for owners after settling liabilities; it equals assets minus liabilities. At the start of 2019, equity was 800,000 minus 185,000, which is 615,000. For 2020, assets decrease by 52,000 and liabilities increase by 24,000. So end-of-year assets are 800,000 minus 52,000 = 748,000, and end-of-year liabilities are 185,000 plus 24,000 = 209,000. Therefore, end-of-year equity is 748,000 minus 209,000 = 539,000. Equivalently, equity changes by -52,000 from the asset drop and -24,000 from the liability rise, so 615,000 minus 76,000 equals 539,000.

Equity is what remains for owners after settling liabilities; it equals assets minus liabilities. At the start of 2019, equity was 800,000 minus 185,000, which is 615,000. For 2020, assets decrease by 52,000 and liabilities increase by 24,000. So end-of-year assets are 800,000 minus 52,000 = 748,000, and end-of-year liabilities are 185,000 plus 24,000 = 209,000. Therefore, end-of-year equity is 748,000 minus 209,000 = 539,000. Equivalently, equity changes by -52,000 from the asset drop and -24,000 from the liability rise, so 615,000 minus 76,000 equals 539,000.