A company's balance sheet shows total assets of \$400{,}000 and total liabilities of \$150{,}000. What is the amount of shareholders' equity?

• A. \$400{,}000
• B. \$550{,}000
• C. \$150{,}000
• D. \$250{,}000

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the accounting equation, which states that Assets = Liabilities + Shareholders' Equity. This equation is fundamental to financial accounting and helps determine the relationship between these components.
2. Step 2: Rearrange the accounting equation to solve for Shareholders' Equity. Using basic algebra, the formula becomes: Shareholders' Equity = Assets - Liabilities.
3. Step 3: Identify the values provided in the problem. The total assets are \$400,000, and the total liabilities are \$150,000.
4. Step 4: Substitute the given values into the formula. Using MathML, the equation can be expressed as: $\mathrm{Shareholders\text{'}} \mathrm{Equity}=\mathrm{Assets}-\mathrm{Liabilities}$. Replace 'Assets' with 400,000 and 'Liabilities' with 150,000.
5. Step 5: Perform the subtraction operation to find the amount of Shareholders' Equity. This step involves calculating 400,000 - 150,000, which gives the result.