a.). Kevin Foster begins business by investing $20,000 in cash, equipment valued

Question

a.). Kevin Foster begins business by investing $20,000 in cash, equipment valued at $60,000, and $5,000 worth of supplies. What is the equity of the company? Show all workings in an acceptable format.

b). If Kevin Foster included $30,000 in notes payable (treated as part of liabilities), what is the amount of the owner’s equity account? Incorporate the information from the previous question (Question 1, above).

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Explanation / Answer

PART A

equity represents the owner's investment in the business - the owner's withdrawals from the business + net income (if any) - net loss (if any)

For cash, entry will be

Cash Dr. 20000

Equity Cr. 20000

For equipment, entry will be

equipment Dr. 60000

Equity Cr. 60000

For supplies, entry will be

Cash Dr. 5000

Equity Cr. 5000

Therefore, total equity of the company = 20000+60000+5000 = 85000

PART B

Notes payable are part of liability therefore will not be considered in owner's equity. Thus, due to the introduction of notes payable (as liabilities) owner's equity will be the same that is $85000

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