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A bakery reports total liabilities of $70,150 and total owners' equity of $78,750. What must its total assets equal?
A$148,900
B$78,750
C$70,150
D$8,600
Answer & Solution
Correct answer: A. $148,900
1. The basic accounting equation is reflected in the three totals on a balance sheet.
2. Assets equal liabilities plus owners' equity.
3. Total liabilities are $70,150.
4. Total owners' equity is $78,750.
5. Add them: $70,150 plus $78,750 equals $148,900, so total assets are $148,900.
6. Reporting $8,600 subtracts the two totals instead of adding them, which is the classic slip on this equation.
7. Reporting either $70,150 or $78,750 alone names one side of the funding while ignoring the other.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.4 The Balance Sheet_
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