Sergei has $23 000 in assets and $13 200 in liabilities. If Sergei used $3000 of his cash to pay off his bank loan, how would that impact his owner's equity? Use the balance sheet equation to illustrate your answer.

Question

Mathematics

Francis Vega

21 December, 17:08

Sergei has $23 000 in assets and $13 200 in liabilities. If Sergei used $3000 of his cash to pay off his bank loan, how would that impact his owner's equity? Use the balance sheet equation to illustrate your answer.

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Answers (1)

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Jerimiah Pena · Answer 1

Balance sheet equation states:

Assets (A) = Liabilities (L) + Owners equity (E)

Before paying the loan,

E = 23000-13200 = $9,800

After paying the loan in cash,

E = 23000-13200-3000 = $6,800

Therefore, paying own's loan reduces owners equity by $3,000.