Wims, Inc., has current assets of $3,400, net fixed assets of $32,500, current liabilities of $2,900, and long-term debt of $6,900. a. What is the value of the shareholders' equity account for this firm
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To find the value of the shareholders' equity account for Wims, Inc., we can use the accounting equation which is:
Assets = Liabilities + Shareholders' Equity
From the accounting equation, we can rearrange it to solve for shareholders' equity:
Shareholders' Equity = Assets - Liabilities
According to the information you've provided:
Total Assets = Current Assets + Net Fixed Assets Total Assets = $3,400 (Current Assets) + $32,500 (Net Fixed Assets) Total Assets = $35,900
Total Liabilities = Current Liabilities + Long-Term Debt Total Liabilities = $2,900 (Current Liabilities) + $6,900 (Long-Term Debt) Total Liabilities = $9,800
Now we can calculate the shareholders' equity:
Shareholders' Equity = Total Assets - Total Liabilities Shareholders' Equity = $35,900 - $9,800 Shareholders' Equity = $26,100
Therefore, the value of the shareholders' equity account for Wims, Inc. is $26,100.
Extra: Understanding the shareholders' equity concept is essential for students studying finance or accounting. Shareholders' equity represents the amount of money that would be returned to shareholders if all the company's assets were liquidated and all its debts were paid off. It's essentially the net worth of the company from the shareholders' perspective.
In simpler terms, Shareholders' Equity can also be understood as the amount of money that has been invested in a company by its shareholders, plus any earnings retained by the company.
The components that typically make up shareholders' equity in a company's balance sheet include:
1. Paid-in capital (the initial capital invested by shareholders). 2. Retained earnings (the cumulative amount of earnings not distributed to shareholders in the form of dividends). 3. Treasury shares (if the company has bought back its own shares). 4. Accumulated other comprehensive income (which includes unrealized gains and losses that are not included in the net income calculation).
Understanding the composition of shareholders' equity helps in analyzing a company's financial health and stability. It provides insight into how much of the company is financed by investor's equity versus creditor's claims (liabilities).