The following table shows the assets and liabilities of the Smith family in 2005 and 2009.
\begin{tabular}{|l|l|}
\hline 2005 & 2009 \\
\hline home valued at \$200,000 & home valued at \$180,000 \\
\hline mortgage of \$30,000 & home equity loan of \$18,000 \\
\hline car valued at \$25,000 & car valued at \$18,000 \\
\hline car loan of \$8,000 & boat valued at \$20,000 \\
\hline & personal loan of \$5,000 \\
\hline
\end{tabular}
Based on the table, which of the following is true?
A. From 2005 to 2009, both assets and liabilities decreased.
B. From 2005 to 2009, both assets and liabilities increased.
C. From 2005 to 2009, assets decreased and liabilities increased.
D. From 2005 to 2009, assets increased and liabilities decreased.
Answer (2)
Calculate total assets in 2005: $200,000 + $25,000 = $225,000.
Calculate total liabilities in 2005: $30,000 + $8,000 = $38,000.
Calculate total assets in 2009: $180,000 + $18,000 + $20,000 = $218,000.
Calculate total liabilities in 2009: $18,000 + $5,000 = 23 , 000. B o t ha sse t s an d l iabi l i t i es d ecre a se df ro m 2005 t o 2009 , so t h e an s w er i s \boxed{a}$.
Explanation
Calculate Total Assets and Liabilities First, we need to calculate the total assets and liabilities for both 2005 and 2009.
Assets and Liabilities in 2005 In 2005, the Smith family's assets included a home valued at $200,000 and a car valued at $25,000. Therefore, their total assets in 2005 were: 200 , 000 + 25 , 000 = 225 , 000 The liabilities in 2005 included a mortgage of $30,000 and a car loan of $8,000. Thus, their total liabilities in 2005 were: 30 , 000 + 8 , 000 = 38 , 000
Assets and Liabilities in 2009 In 2009, the assets included a home valued at $180,000, a car valued at $18,000, and a boat valued at $20,000. So, the total assets in 2009 were: 180 , 000 + 18 , 000 + 20 , 000 = 218 , 000 The liabilities in 2009 included a home equity loan of $18,000 and a personal loan of $5,000. Therefore, their total liabilities in 2009 were: 18 , 000 + 5 , 000 = 23 , 000
Comparing Assets and Liabilities Now, let's compare the assets and liabilities from 2005 to 2009. Assets: 2005: $225,000, 2009: $218,000. Since $225,000 > $218,000, assets decreased from 2005 to 2009. Liabilities: 2005: $38,000, 2009: $23,000. Since $38,000 > $23,000, liabilities decreased from 2005 to 2009.
Conclusion Based on our calculations, assets decreased and liabilities decreased from 2005 to 2009. Therefore, the correct answer is: a. From 2005 to 2009, both assets and liabilities decreased.
Examples
Understanding how assets and liabilities change over time is crucial in personal finance. For example, if you're considering buying a home, tracking your assets (like savings and investments) and liabilities (like loans and credit card debt) helps you assess your financial health. If your assets are decreasing while your liabilities are increasing, it might be a sign to re-evaluate your spending and saving habits to ensure long-term financial stability. This type of analysis is also fundamental in business for making informed decisions about investments and debt management.
The Smith family's total assets decreased from $225,000 in 2005 to $218,000 in 2009, while their total liabilities also decreased from $38,000 to $23,000. Thus, both assets and liabilities declined over the period. The correct choice is A: both assets and liabilities decreased.
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