Question

Izzy Company was started last year when the shareholders invested $150 cash into the company. At the time, Izzy also borrowed $90 cash from a local bank. Izzy used $170 cash to purchase inventory for $170. This year Izzy Company sold all of the inventory for $120 cash; that is NOT a typographical error… the amount received for all of the inventory was only $120 cash. Which ONE of the following statements is TRUE with respect to Izzy Company’s balance sheet AFTER the sale of the inventory? Note: assume that there is no interest on the loan.a. Cash is $120

b. Cash is $270
c. Total Owners' Equity is $100
d. Total Owners' Equity is $150
e. Inventory is $50

Answer 1

c. Total Owners' Equity is $100

Step-by-step explanation:

Owners' Equity can be simply defined as Assets minus Liabilities. In this situation, after the sale of the inventory, cash on hand is the company's only asset, while the bank loan is the only liability, thus:

Owners' Equity = Cash - Loan

Since there in no interest, the loan remains at $90. As for the cash value, considering all transactions, it can determined as:

`Cash = 150+90-170 +120\\Cash = 190`

Therefore, Total Owner's Equity (OE) is:

`OE = 190 - 90\\OE = 100`

c. Total Owners' Equity is $100