Question

You are estimating your company's external financing needs for the next year. At the end of the year you expect that owners' equity will be $80 million, total assets will amount to $170 million, and total liabilities will be $70 million. How much will your firm need to borrow, or otherwise acquire, from outside sources during the year?A. $20 millionB. $70 millionC. $150 millionD. $160 millionE. $180 millionF. None of the above.

Answer 1

A. $20 million

Step-by-step explanation:

The balance sheet comprises of the assets and liabilities. With the help of the accounting equation, the total assets are equal to the total liabilities including stockholder's equity.

In mathematically,

Total assets = Total liabilities + Shareholder equity

$170 million = $70 million + $80 million + borrowed amount

$170 million = $150 million + borrowed amount

So, the borrowed amount would equal tp

= $170 million - $150 million

= $20 million