How to Calculate Equity at the End of the Period for a Business

What is the equity at the end of the period for HNM Consulting Pty Ltd?

A. $45,000

B. $20,000

C. $40,000

D. $25,000

E. $75,000

Answer

The correct answer is E. $75,000

Calculating equity at the end of the period for a business involves understanding the basic accounting equation: Equity = Assets - Liabilities. Using the data provided for HNM Consulting Pty Ltd, we can see that the total assets at the beginning of the year were $80,000 and total liabilities were $40,000.

Throughout the year, the business earned $150,000 in income, incurred $95,000 in expenses, and paid out dividends of $20,000. To calculate the equity at the end of the period, we need to first determine the net income:

Net Income = Income - Expenses

Net Income = $150,000 - $95,000 = $55,000

Next, we can calculate the equity at the end of the period using the formula:

Equity at the end of the period = (Total assets at the beginning of the year + Net Income) - Total liabilities - Dividends paid

Equity at the end of the period = ($80,000 + $55,000) - $40,000 - $20,000

Equity at the end of the period = $135,000 - $40,000 - $20,000

Equity at the end of the period = $75,000

Therefore, the equity at the end of the period for HNM Consulting Pty Ltd is $75,000. This demonstrates the financial health and value of the business, showing that it has assets exceeding liabilities and has generated profit during the year.