NASAA Series 65, Uniform Investment Adviser Law ExaminationEconomic Factors and Business InformationEasy
A financial analyst is evaluating a company's financial health. The company's balance sheet shows total assets of $500,000 and total liabilities of $200,000. What is the company's owner's equity?
- A$200,000
- B$700,000
- C$300,000
- D$500,000
Show answer & explanationAnswer & explanation
Correct answer: C. $300,000
Owner's equity is calculated by subtracting total liabilities from total assets. In this case, $500,000 (assets) - $200,000 (liabilities) = $300,000.
Why the other options are wrong
- A. This represents the total liabilities, not owner's equity.
- B. This would be the sum of assets and liabilities, which is not a standard financial metric for owner's equity.
- D. This represents the total assets, not owner's equity.
Owner's Equity
Owner's equity represents the owner's residual claim on the assets of a business after deducting liabilities. It is also known as shareholders' equity or stockholders' equity.
- Calculated as Assets - Liabilities
- Represents the net worth of a company
- Includes capital contributions and retained earnings
Memory trick: Assets Less Liabilities Equals Equity Always.