A corporation has liabilities of $100 million and owners' equity of $40 million. What is the amount of the asset balance?

Rationale

Assets total $140 million, calculated by adding liabilities and owners' equity.

According to the accounting equation, assets equal liabilities plus owners' equity. In this case, the liabilities of $100 million combined with owners' equity of $40 million result in a total asset balance of $140 million.

A ($140 million) CORRECT

This choice correctly reflects the total asset balance calculated from the sum of liabilities and owners' equity. By adding $100 million in liabilities to $40 million in owners' equity, the total assets amount to $140 million, which is consistent with the fundamental accounting equation.

B ($60 million) YOUR ANSWER

This option incorrectly suggests a total asset balance of $60 million. It does not account for the liabilities and owners' equity properly; rather, it appears to be a miscalculation, potentially subtracting owners' equity from liabilities instead of adding them.

C ($100 million) YOUR ANSWER

This choice only considers the liabilities and ignores the owners' equity entirely. It mistakenly represents the total assets as equal to the liabilities alone, neglecting the necessary addition of the owners' equity, which is crucial for the complete asset calculation.

D ($40 million) YOUR ANSWER

This option inaccurately reflects the owners' equity as the total asset balance. It ignores the liabilities and fails to apply the accounting equation correctly, which requires both liabilities and owners' equity to determine the total assets.

Conclusion

In summary, the total asset balance of $140 million arises from the combination of $100 million in liabilities and $40 million in owners' equity, adhering to the foundational accounting equation. The other options misinterpret or overlook essential components of this equation, leading to incorrect calculations of total assets.

A corporation has liabilities of $100 million and owners' equity of $40 million. What is the amount of the asset balance?

Assets total $140 million, calculated by adding liabilities and owners' equity.

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