NASAA Series 65, Uniform Investment Adviser Law ExaminationEconomic Factors and Business InformationEasy
A financial analyst is evaluating a company's financial statements. The company's total assets are $500,000 and its total liabilities are $200,000. What is the company's owner's equity?
- A$300,000
- B$700,000
- C$200,000
- D$500,000
Show answer & explanationAnswer & explanation
Correct answer: A. $300,000
Owner's equity is calculated using the accounting equation: Assets = Liabilities + Owner's Equity. Rearranging this, Owner's Equity = Assets - Liabilities. So, $500,000 - $200,000 = $300,000.
Why the other options are wrong
- B. This would be the sum of assets and liabilities, which is incorrect for owner's equity.
- C. This represents the total liabilities, not the owner's equity.
- D. This represents the total assets, not the owner's equity.
Owner's Equity
The residual claim of the owners on the assets of a business after deducting liabilities, representing the owners' stake in the company.
- Represents the owners' share in the company.
- Calculated using the accounting equation: Assets - Liabilities.
- Also known as stockholders' equity or shareholders' equity.
Memory trick: Assets Love Equity: Assets = Liabilities + Equity