Mike Anderson’s end-of-year equity is calculated after asset and liability changes: assets +$120,000 and liabilities +$72,000 during 2020. Beginning assets $500,000 and liabilities $175,000. What is equity as of December 31, 2020?

Mike Anderson’s end-of-year equity is calculated after asset and liability changes: assets +$120,000 and liabilities +$72,000 during 2020. Beginning assets $500,000 and liabilities $175,000. What is equity as of December 31, 2020?

• A. 325,000
• B. 451,000
• C. 373,000
• D. 500,000

Answer: (C)

Equity is what remains for the owner after all liabilities are paid, so it equals assets minus liabilities. Start with the year’s totals: beginning assets are 500,000 and beginning liabilities are 175,000. Assets increase by 120,000, giving ending assets of 620,000. Liabilities increase by 72,000, giving ending liabilities of 247,000. End-of-year equity = ending assets minus ending liabilities = 620,000 − 247,000 = 373,000. So, equity as of December 31, 2020 is 373,000.

Equity is what remains for the owner after all liabilities are paid, so it equals assets minus liabilities.

Start with the year’s totals: beginning assets are 500,000 and beginning liabilities are 175,000. Assets increase by 120,000, giving ending assets of 620,000. Liabilities increase by 72,000, giving ending liabilities of 247,000.

End-of-year equity = ending assets minus ending liabilities = 620,000 − 247,000 = 373,000.

So, equity as of December 31, 2020 is 373,000.