Cupid Co. has total assets of $600,000 and its liabilities are equal to two-thirds of its total assets. What is the amount of Cupid Co.'s Owner's Equity? Please explain how you got this answer.
400000
To solve this problem, we need to use the accounting equation:
Assets = Liabilities + Owner's Equity
We know that Cupid Co.'s total assets are $600,000, and its liabilities are two-thirds of its total assets:
Liabilities = (2/3) x $600,000 = $400,000
We can now use the accounting equation to solve for Owner's Equity:
$600,000 = $400,000 + Owner's Equity
Owner's Equity = $600,000 - $400,000
Owner's Equity = $200,000
Therefore, the amount of Cupid Co.'s Owner's Equity is $200,000.
To find the amount of Cupid Co.'s Owner's Equity, we need to understand the relationship between assets, liabilities, and owner's equity.
Owner's Equity is the residual interest in the assets of an entity after deducting liabilities. In other words, it represents the net worth of the business, or what would be left for the owners if all liabilities were paid off.
Here's how we can calculate the amount of Owner's Equity:
Step 1: Determine the amount of liabilities.
Given that Cupid Co.'s liabilities are equal to two-thirds (2/3) of its total assets, we can calculate the liabilities as follows:
Liabilities = (2/3) x Total Assets
Step 2: Calculate the amount of assets.
We know that Cupid Co.'s total assets are $600,000, so the assets are simply $600,000.
Step 3: Compute the amount of Owner's Equity.
The formula for owner's equity is:
Owner's Equity = Assets - Liabilities
Substituting the values we know:
Owner's Equity = $600,000 - (2/3) x $600,000
Simplifying this equation:
Owner's Equity = $600,000 - $400,000
Owner's Equity = $200,000
Therefore, the amount of Cupid Co.'s Owner's Equity is $200,000.