Question

On March 1, ABX Company’s assets are $104,000 and its liabilities are $34,000. On March 5, ABX is fined $17,000 for failing emission standards. ABX immediately pays the fine in cash. After the fine is paid, what is the amount of equity for ABX? (Negative amounts should be indicated by a minus sign.)

Answer 1

Answer:

$53,000

Explanation:

The accounting equation gives the relationship between the 3 elements of the balance sheet namely; assets, liabilities and equity as shown below.

Assets = Liabilities + Equity

Given that On March 1, ABX Company’s assets are $104,000 and its liabilities are $34,000 then on that day

Equity = $104,000 - $34,000

= $70,000

If On March 5, ABX is fined $17,000 for failing emission standards. ABX immediately pays the fine in cash.

This will result in a debit to fines and penalties (p/l) and a credit to cash. Thus, assets and equities reduce by $17,000

After the fine is paid, the amount of equity for ABX

= $70,000 - $17,000

= $53,000