Question

Shane, Inc., has completed its fiscal year and reported Total Assets of $1,000,000 and Total Liabilities of $300,000. Calculate the value of common equity.

Answer 1

Answer: The value of common equity is $700,000.

We use the accounting identity to arrive at the value of common equity for Shane Inc.

The accounting identity is:

$Total Assets = Total Liabilities + Shareholders' Equity$

Substituting the values from the question in the equation above we get,

$1,000,000 = 300,000 + Shareholders' Equity$

$1000,000 - 300,000 = Shareholders' Equity$

$Shareholders' Equity = 700,000$