Exercise 1-9. Using the accounting equation, determine the missing amount from each of the separate situations a, b, and c below.
| | A | B | C |
|---|----------|-----------|---------|
| 1 | Assets | Liabilities | Equity |
| 2 | $ (a) | $20,000 | (c) |
| 3 | $100,000 | $34,000 | $40,000 |
| 4 | $154,000 | (c) | |
Answer (1)
The accounting equation is Assets = Liabilities + Equity.
Situation (a) cannot be solved with the given information.
In situation (c), Liabilities = Assets - Equity.
Liabilities in situation (c) is $\boxed{ 114,000} .
Explanation
Understanding the Accounting Equation Let's analyze the accounting equation, which states that Assets = Liabilities + Equity. We will use this equation to find the missing values in the table.
Analyzing Situation (a) In situation (a), we are given Liabilities = $20,000, but we don't have enough information to determine both Assets and Equity. We need at least one of these values to find the other. Therefore, we cannot solve for the missing values in situation (a).
Analyzing Situation (c) In situation (c), we are given Assets = $154,000 and Equity = $40,000. We can use the accounting equation to find Liabilities: Liabilities = Assets - Equity.
Calculating Liabilities for Situation (c) Now, let's calculate the Liabilities for situation (c): Liabilities = $154,000 - $40,000 = $114,000.
Final Answer for Situation (c) Therefore, the missing amount for Liabilities in situation (c) is $114,000.
Examples
Understanding the accounting equation is crucial for managing personal or business finances. For example, if you have a small business with assets (like cash, equipment, and inventory) totaling $154,000 and your equity (your ownership stake) is $40,000, then your liabilities (what you owe to others, like loans or accounts payable) must be $114,000. This equation helps you understand your financial position and make informed decisions about investments, borrowing, and spending. By keeping track of your assets, liabilities, and equity, you can ensure that your finances are balanced and sustainable.
