Question

Residual Claims Haung. Inc; is obligated to pay its creditors $10,700 very soon.1. What is the market value of the shareholders equity if assets have a market value of 9900?2. What if assets equal $9,990?

Answer 1

Answer and Explanation:

The computation of the shareholder equity for each case is shown below:

a. For case one

As we know that

Total assets = Total liabilities + stockholder equity

$9,900 = $10,700 + stockholder equity

So, the stockholder equity is

= $10,700 - $9,900

= $800

b. For case two

Total assets = Total liabilities + stockholder equity

$9,990 = $10,700 + stockholder equity

So, the stockholder equity is

= $10,700 - $9,990

= $710