Business Plumbing Law Practice Exam

A company has total assets of $125,000 and total liabilities of $90,000. What is the owner's equity (net worth)?

$25,000

$30,000

$35,000

To determine the owner's equity, which represents the net worth of the company, you apply the basic accounting equation: Assets = Liabilities + Owner's Equity. In this case, we have the total assets amounting to $125,000 and total liabilities of $90,000.

By rearranging the formula, we can isolate owner's equity: Owner's Equity = Assets - Liabilities. Substituting in the values from the question, we have Owner's Equity = $125,000 - $90,000.

Calculating this gives us Owner's Equity = $35,000. This means that the correct calculation of the difference between total assets and total liabilities clearly indicates the owner's equity. Therefore, recognizing this fundamental relationship between assets, liabilities, and equity is key to arriving at the correct conclusion among the choices provided.

$40,000