using the equation A=L+OE how would you balance this problem: You buy acompany for $200,000 - Assets are land $50,000, building $130,000, equip $20,000. Took 70,000 from personal bank account to invest in business. Made a down payment of $40,000 and deposited the rest in the business bank account. A long term loan was obtain for the balance purchase price. List how you would set up a balance sheet.
To balance the equation A = L + OE, we need to identify the assets (A), liabilities (L), and owner's equity (OE) in this scenario and ensure that both sides of the equation are equal.
First, let's compile the information given:
Assets:
Land: $50,000
Building: $130,000
Equipment: $20,000
Cash: $70,000 (from personal bank account)
Total Assets: $50,000 + $130,000 + $20,000 + $70,000 = $270,000
Liabilities:
Long-term loan: Balance purchase price after the down payment
Owner's Equity:
Down payment: $40,000
Remaining cash deposit in the business bank account: $200,000 - $40,000 = $160,000
To set up a balance sheet, we'll organize the information accordingly:
Assets:
Land: $50,000
Building: $130,000
Equipment: $20,000
Cash: $70,000
Total Assets: $50,000 + $130,000 + $20,000 + $70,000 = $270,000
Liabilities:
Long-term loan: Balance purchase price after the down payment (to be determined)
Owner's Equity:
Down payment: $40,000
Remaining cash deposit in the business bank account: $160,000
Total Owner's Equity: $40,000 + $160,000 = $200,000
Now, we can calculate the liability (Long-term loan):
Liabilities:
Long-term loan: Total Assets - Owner's Equity
Long-term loan: $270,000 - $200,000 = $70,000
Finally, we can update the balance sheet with the calculated values:
Assets:
Land: $50,000
Building: $130,000
Equipment: $20,000
Cash: $70,000
Total Assets: $270,000
Liabilities:
Long-term loan: $70,000
Owner's Equity:
Down payment: $40,000
Remaining cash deposit in the business bank account: $160,000
Total Owner's Equity: $200,000
Now the balance sheet is balanced:
Total Assets ($270,000) = Total Liabilities ($70,000) + Owner's Equity ($200,000)
To balance the equation A = L + OE in this case, you need to create a balance sheet that lists all the assets, liabilities, and owner's equity.
Here's how you can set up the balance sheet:
1. Assets:
- Land: $50,000
- Building: $130,000
- Equipment: $20,000
- Cash in business bank account: $90,000 ($200,000 purchase price - $40,000 down payment - $70,000 personal investment)
Total Assets: $290,000 ($50,000 + $130,000 + $20,000 + $90,000)
2. Liabilities:
- Long-term loan: $110,000 (balance purchase price - down payment)
Total Liabilities: $110,000
3. Owner's Equity:
- Initial investment from personal bank account: $70,000
Total Owner's Equity: $70,000
Now, let's verify if the equation balances:
Total Assets ($290,000) = Total Liabilities ($110,000) + Total Owner's Equity ($70,000)
$290,000 = $110,000 + $70,000
Both sides of the equation are equal, so the balance sheet is balanced.
To solve the problem, you needed to take into account the given information, such as the purchase price, down payment, personal investment, and long-term loan, and then organize the data into the appropriate categories on the balance sheet.