Use the “balance sheet equation” to determine owners’ equity if liabilities are $5 million and assets are $10 million.
Assets = Liabilities + Owners’ equity
Franklin Healthcare reported revenues of $1,500 million in 2010 and $1,250 million in 2011. The revenue streams were comprised of 25% patient revenue, 50% third-party revenue, and the remaining 25% was a combination of grants and investments. The hospital spent $25 thousand in marketing for each of the past two years. The average daily patient population ranged from 500 in 2010 to 400 patients in 2011.
Franklin reported operating expenses and depreciation of $500 thousand in 2010 but due to layoffs and reorganization operating expenses decreased by $200 thousand in 2011. Hospital administration anticipates little growth in patient population in the coming year and will likely need to invest in new equipment. The nonprofit facility pays no shareholder dividends or taxes.
To determine owners' equity using the balance sheet equation, you need to know the values for liabilities and assets.
Given:
Liabilities = $5 million
Assets = $10 million
The balance sheet equation is Assets = Liabilities + Owners’ equity. To find owners' equity, we can rearrange the equation as Owners' equity = Assets - Liabilities.
Substituting the values into the equation:
Owners' equity = $10 million - $5 million
Owners' equity = $5 million
Therefore, the owners' equity is $5 million.