Question

Dimeback, Inc., is obligated to pay its creditors $7,400 during the year. Required: (a) What is the market value of the shareholders' equity if assets have a market value of $10,800? (b) What if assets equal $6,500?

Answer 1

Answer:

a.  $3,400

b. $0

Explanation:

As we know

Total assets = Total liabilities + owners equity

a. In the first case

The shareholder equity would be

= Total assets - total liabilities

= $10,800 - $7,400

= $3,400

b. In the first case, the shareholder equity would be zero as it should not be negative. The negative value would be

= Total assets - total liabilities

= $6,500 - $7,400

= -$900    

So it would be zero