An entity's owners' equity is one-third of its total liabilities. Its assets total $200 000. What is the amount of its owners' equity?
A) $50 000
B) $66 667
C) $150 000
D) $300 000

Question

Quizplus · Accepted Answer

Owners' equity is one-third of liabilities, so if we let L be liabilities and E be equity, E = 1/3L. The accounting equation is Assets = Liabilities + Equity. Given assets are $200,000, we have $200,000 = L + 1/3L = 4/3L. Solving for L gives L = $150,000. Therefore, E = 1/3 * $150,000 = $50,000.

An Entity's Owners' Equity Is One-Third of Its Total Liabilities