   # Accounting equation Inspirational Inc. is a motivational consulting business. At the end of its accounting period, October 31, 20Y2, Inspirational has assets of $5,250,000 and liabilities of$1,600,000. Using the accounting equation and considering each case independently, determine the following amounts: a. Stockholders’ equity as of October 31, 20Y2. b. Stockholders’ equity as of October 31, 20Y3, assuming that assets increased by $800,000 and liabilities increased by$330,000 during 20Y3. c. Stockholders’ equity as of October 31, 20Y3, assuming that assets decreased by $600,000 and liabilities increased by$140,000 during 20Y3. d. Stockholders’ equity as of October 31, 20Y3, assuming that assets increased by $440,000 and liabilities decreased by$90,000 during 20Y3. e. Net income (or net loss) during 20Y3, assuming that as of October 31, 20Y3, assets were $6,140,000, liabilities were$1,950,000, and no additional common stock was issued or dividends paid. ### Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

#### Solutions

Chapter
Section ### Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 1, Problem 7E
Textbook Problem
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## Accounting equationInspirational Inc. is a motivational consulting business. At the end of its accounting period, October 31, 20Y2, Inspirational has assets of $5,250,000 and liabilities of$1,600,000. Using the accounting equation and considering each case independently, determine the following amounts:a. Stockholders’ equity as of October 31, 20Y2.b. Stockholders’ equity as of October 31, 20Y3, assuming that assets increased by $800,000 and liabilities increased by$330,000 during 20Y3.c. Stockholders’ equity as of October 31, 20Y3, assuming that assets decreased by $600,000 and liabilities increased by$140,000 during 20Y3.d. Stockholders’ equity as of October 31, 20Y3, assuming that assets increased by $440,000 and liabilities decreased by$90,000 during 20Y3.e. Net income (or net loss) during 20Y3, assuming that as of October 31, 20Y3, assets were $6,140,000, liabilities were$1,950,000, and no additional common stock was issued or dividends paid.

To determine

Calculate the required amounts for Company I, using the accounting equation.

### Explanation of Solution

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relation between resources or assets of a business and claims on the resources by the creditors, and the owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Stockholder’s Equity

a.

Calculate the stockholder's equity for Company I as of October 31, 20Y2:

Stockholder’s Equity =  Assets - Liabilities=  $5,250,000 -$1,600,000=  $3,650,000 Hence, the stockholder's equity of Company I as on October 31, 20Y2 is$3,650,000.

b.

Calculate the stockholder's equity of Company I as on October 31, 20Y3, assuming assets increased by $800,000 and liabilities increased by$330,000 during 20Y3.

Assets = Assets of 20Y2 + increase in 20Y3= $5,250,000+800,000=$6,050,000

Liabilities = Liabilities of 20Y2 + increase in 20Y3=$1,600,000+330,000=$1,930,000

Stockholder’s  Equity =  AssetsLiabilities=  $6,050,000$1,930,000=  $4,120,000 Hence, the stockholder's equity of Company I as on October 31, 20Y3 is$4,120,000.

c.

Calculate the stockholder's equity of Company I as on October 31, 20Y3, assuming assets decreased by $600,000 and liabilities increased by$140,000 during 20Y3:

Assets = Assets of 20Y2 + decrease in 20Y3= $5,250,000600,000=$4,650,000

Liabilities = Liabilities of 20Y2 + increase in 20Y3=$1,600,000+140,000=$1,740,000

Stockholder’s Equity =  AssetsLiabilities=  $4,650,000$1,740,000=  $2,910,000 Hence, the stockholder's equity of Company I as on October 31, 20Y3 is$2,910,000

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