Question

Jorge owns an indoor paintball and laser tag business. At the end of the current year accounting period, Dec 31, Jorge has assets of $400,000 and liabilities of $175,000. Determine the owner's equity as of Dec 31 at the end of the next year, assuming assets increased by $50,000 and liabilities decreased by $10,000.

a. $225,000
b. $265,000
c. $185,000
d. $285,000

Answer 1

To determine the owner's equity at the end of the next year, subtract the new liabilities from the new assets. The answer is option d: $285,000.

Step-by-step explanation:

To determine the owner's equity at the end of the next year, we need to know the change in assets and liabilities compared to the current year. As the question states, the assets increased by $50,000, going from $400,000 to $450,000.

The liabilities decreased by $10,000, going from $175,000 to $165,000. Owner's equity is calculated by subtracting liabilities from assets, so we can find it by subtracting the new liabilities from the new assets: $450,000 - $165,000 = $285,000. Therefore, the owner's equity at the end of the next year is $285,000, which is option d.