A business has assets of $12,000 cash, $5,000 inventory, $8,000 equipment, and liabilities of $4,000 loan and $1,000 credit line. What is equity?

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Multiple Choice

A business has assets of $12,000 cash, $5,000 inventory, $8,000 equipment, and liabilities of $4,000 loan and $1,000 credit line. What is equity?

Explanation:
Equity is what remains for owners after all debts are paid, so it’s found by subtracting liabilities from assets. Add up the assets: 12,000 + 5,000 + 8,000 = 25,000. Add up the liabilities: 4,000 + 1,000 = 5,000. Subtracting gives 25,000 − 5,000 = 20,000. So the equity is 20,000. The other numbers don’t fit because they would require different totals for assets or liabilities; with these figures, only 20,000 balances the sheet.

Equity is what remains for owners after all debts are paid, so it’s found by subtracting liabilities from assets. Add up the assets: 12,000 + 5,000 + 8,000 = 25,000. Add up the liabilities: 4,000 + 1,000 = 5,000. Subtracting gives 25,000 − 5,000 = 20,000. So the equity is 20,000. The other numbers don’t fit because they would require different totals for assets or liabilities; with these figures, only 20,000 balances the sheet.

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