Question

Baldwin's balance sheet has $88,613,000 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 Baldwin's book value?

a. $90,614,000
b. $94,614,000
c. $40,350,000
d. $82,613,000

Answer 1

Baldwin's book value will be $94,613,000 after the increase in assets and decrease in liabilities, making option b the correct option.

Step-by-step explanation:

The subject of this question involves understanding and calculating book value which relates to a company's balance sheet. Baldwin's current equity is $88,613,000. If assets increase by $4,000,000 and liabilities decrease by $2,000,000, Baldwin's book value will be affected according to the fundamental accounting equation: Assets = Liabilities + Equity.

Starting with $88,613,000 in equity and adding the increase in assets ($4,000,000) and the decrease in liabilities ($2,000,000), we calculate the new equity as:

$88,613,000 (current equity)

+$4,000,000 (increase in assets)

+$2,000,000 (decrease in liabilities)

The new equity (book value) will be $94,613,000, which makes option b the correct option.