Question

The assets of Moon Company are $180,000 and the total liabilities are $20,000.

The equity is​ ________.

A. $180,000
B. $20,000
C. $160,000
D. $200,000

Answer 1

In the context of Moon Company, the equity is equal to total assets ($180,000) minus total liabilities ($20,000), resulting in equity of $160,000 (Option C).

Step-by-step explanation:

The concept of equity in a business context is an essential aspect of understanding a company's financial health. Equity refers to the amount of money that would be returned to a company's shareholders if all of the assets were liquidated and all of the company's debts were paid off. It is calculated as the difference between the total assets and total liabilities.

In the case of Moon Company, the calculation for equity would be the company's total assets ($180,000) minus the total liabilities ($20,000). This gives us:

Equity = Total Assets – Total Liabilities
= $180,000 – $20,000
= $160,000.

Therefore, the correct answer for Moon Company's equity is: C. $160,000.

This concept is similar to examples provided, such as the case where a house with a market value of $200,000, with an outstanding bank debt of $180,000, results in equity of $20,000.