Question

Which of the following modifications to the list of assets and liabilities below would result in a net worth of $100,000?
Recreational Vehicle valued at $110,000.
Car valued at $27,000.
Medical bills totaling $8,700.
Loan balance of $80,000.
Savings of $5,000.
Retirement fund of $50,000.
Credit card balance of $2,300.
a.
recreational vehicle value decreasing to $100,000
b.
borrowing $10,000 more in loans
c.
withdrawing $20,000 from the retirement fund
d.
adding $1,000 in credit card debt

Answer 1

First compute current net worth.

Assets = 110,000 (RV) + 27,000 (car) + 5,000 (savings) + 50,000 (retirement) = 192,000
Liabilities = 8,700 (medical) + 80,000 (loan) + 2,300 (credit card) = 91,000
Net worth = 192,000 − 91,000 = 101,000

We need a change that reduces net worth by $1,000 to get $100,000.

a) RV down to $100,000 → −$10,000 (net worth = $91,000)
b) borrowing $10,000 more → either no net change (if you receive cash) or −$10,000 (if only liability changes), neither gives −$1,000
c) withdrawing $20,000 from retirement → −$20,000 (net worth = $81,000)
d) adding $1,000 in credit card debt → −$1,000 (net worth = $100,000)

Answer: d.