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Inspiring U is a motivational consulting business. At the end of its accounting period, December 31, 20Y2, Inspiring U has assets of $690,000 and liabilities of $375,000. Using the accounting equation, determine the following amounts:

a. Stockholders' equity as of December 31, 20Y2.
fill in the blank 1 of 1$

b. Stockholders’ equity as of December 31, 20Y3, assuming that assets increased by $80,000 and liabilities increased by $51,500 during 20Y3.
fill in the blank 1 of 1$

1 answer

To determine the stockholders' equity using the accounting equation, we can use the following formula:

\[ \text{Assets} = \text{Liabilities} + \text{Stockholders' Equity} \]

Part a:

Given data as of December 31, 20Y2:

  • Assets = $690,000
  • Liabilities = $375,000

Using the accounting equation:

\[ \text{Stockholders' Equity} = \text{Assets} - \text{Liabilities} \] \[ \text{Stockholders' Equity} = 690,000 - 375,000 \] \[ \text{Stockholders' Equity} = 315,000 \]

So, the stockholders' equity as of December 31, 20Y2 is $315,000.

Part b:

For the year 20Y3, we are given:

  • Increase in Assets = $80,000
  • Increase in Liabilities = $51,500

First, we need to calculate the new total assets and liabilities at the end of 20Y3:

  1. New Assets: \[ \text{New Assets} = \text{Old Assets} + \text{Increase in Assets} = 690,000 + 80,000 = 770,000 \]

  2. New Liabilities: \[ \text{New Liabilities} = \text{Old Liabilities} + \text{Increase in Liabilities} = 375,000 + 51,500 = 426,500 \]

Now, we can calculate the stockholders' equity as of December 31, 20Y3:

\[ \text{Stockholders' Equity} = \text{New Assets} - \text{New Liabilities} \] \[ \text{Stockholders' Equity} = 770,000 - 426,500 \] \[ \text{Stockholders' Equity} = 343,500 \]

So, the stockholders' equity as of December 31, 20Y3 is $343,500.