Sanchez Corporation has total assets, current liabilities, and long-term liabilities of $40,000, $2,000, and $13,000, respectively. If Sanchez purchases equipment for $5,000 for cash, how much would shareholders' equity be?
A)$25,000
B)$10,000
C)$29,000
D)$11,000

Question

Quizplus · Accepted Answer

$25,000Before the purchase, the shareholders' equity can be calculated using the accounting equation: Assets = Liabilities + Shareholders' Equity. Initially, Assets = $40,000, Liabilities (Current + Long-term) = $2,000 + $13,000 = $15,000. Thus, Shareholders' Equity = Assets - Liabilities = $40,000 - $15,000 = $25,000. Purchasing equipment for $5,000 cash reduces assets (cash) and does not affect liabilities, so shareholders' equity remains $25,000.

Sanchez Corporation Has Total Assets, Current Liabilities, and Long-Term Liabilities