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Your own balance sheet. a. Write-down your own, or an imaginary person’s balance

ID: 1190396 • Letter: Y

Question

Your own balance sheet.

a. Write-down your own, or an imaginary person’s balance sheet. It should include assets (textbooks, etc.) and liabilities (student loans of at least $100, Money you owe to a friend, etc.). Don't forget to include net worth. [No need to write a long balance sheet].

b. Your uncle Richie Rich transfers $100 through a wire transfer into your checking deposit account. He says that it is a gift, and that you have no obligation to pay it back. Suppose you use the $100 to pay off some of your student loans. Rewrite your balance sheet after all the previous transactions have occurred. Calculate what happens to your net worth.

Explanation / Answer

a)

Laptop $ 50

Total networth = Assets - Liabilities

= 105 - 102

= $3

b) When uncle richie rich transfers $100 with no obligation to pay back, cash component in assets increases by 100

i.e cash = 130

assets = 205

If my student loan of $100 is paid off using this $100, then my liabilities and assets decreases by 100

net worth = 105 - 2

= 103

i.e. net worth increases by this extra amount received $100

Assets Liabilities Textbooks $ 20 Student loan $100 Receivables from friend $5 Payables to friend $2 Cash from pocket money $30

Laptop $ 50