Q20E - Horngren'S Financial And Managerial Accounting

Question

Compute the missing amount in the accounting equation for each entity from the financial information presented:

Assets Liabilities Equity

Hair Styles \( ? \) 36,000 $ 36,000

Style Cuts 90,000 ? 48,000

Your Basket 101,000 68,000 ?

Step-by-Step Solution

Answer

Assets equals: $72,000

Liabilities: $42,000

Equity: $33,000

Step-by-Step-Solution Step 1: Calculation of Assets

Assets is calculated as follows: 

$\begin{array}{c} \mathrm{Assets}=\mathrm{Liabilities}+\mathrm{Equity}\\ =\$36,000+\$36,000\\ =\$72,000\end{array}$

Step 2: Calculation of Liabilities

Liabilities is calculated as follows: 

$\begin{array}{c}\mathbf{Liabilities}\mathbf{=}\mathbf{Assets}-\mathbf{Equity}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{90}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{48}\mathbf{,}\mathbf{000}\\ =\$42,000\end{array}$

Step 3: Calculation of Equity

Equity is calculated as follows: 

$\begin{array}{c}\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{Equity}\mathbf{ }\mathbf{=}\mathbf{Assets}-\mathbf{Liabilities}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{101}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{68}\mathbf{,}\mathbf{000}\\ =\$33,000\end{array}$

Thus, in case of Hair styles’ assets equals $72,000, Style Cuts’ liabilities equals $42,000, and Your Basket’s equity equals $33,000.