Question

3. Calculate the equity each of these people has in his or her home: Fred just bought a house for $200,000 by putting 10% as a down payment and borrowing the rest from the bank. Freda bought a house for $150,000 in cash, but if she were to sell it now, it would sell for $250,000.

Answer 1

1. $20,000

2. $250,000

Step-by-step explanation:

In the balance sheet, the assets, liabilities, and stockholder equity is recorded. In this the accounting equation is used which is shown below:

Total assets = Total liabilities + stockholder equity

The debit and credit side of the balance sheet should always be equal and balanced.

Moreover, it always is prepared on the specified date.

In the given case, the equity value would be

1. Assets = $200,000

Down payment = $200,000 × 10% = $20,000

Borrowed amount or Liabilities = $200,000 - $20,000 = $180,000

So, the equity would be $20,000

2. Purchase price = $150,000

Market value to sell = $250,000

The market value would be considered as an equity because there is no liability i.e $250,000