Question

Chester's balance sheet has $82,561,000 in equity. next year they expect assets to increase by $4,000,000 and liabilities to decrease by $2,000,000. if that happens, what will be chester's book value?

A. $88,562,000
B. $84,562,000
C. $76,561,000
D. $34,843,000

Answer 1

Chester's new book value after the expected changes will be $88,561,000, considering the initial equity of $82,561,000, an increase in assets by $4,000,000, and a decrease in liabilities by $2,000,000.

Step-by-step explanation:

To calculate Chester's new book value after an increase in assets and a decrease in liabilities, we start with the original equity provided on the balance sheet. Chester's current equity is $82,561,000. Given that next year assets are expected to increase by $4,000,000 and liabilities are expected to decrease by $2,000,000, we account for these changes to determine the new equity. The increase in assets will add directly to the equity, while the decrease in liabilities, which is the opposite of equity, will also increase the equity by the amount of the decrease. Therefore, the new book value of equity will be calculated as follows:

Original Equity + Increase in Assets + Decrease in Liabilities = New Equity

$82,561,000 + $4,000,000 + $2,000,000 = $88,561,000

Thus, Chester's new book value will be $88,561,000.