Chase starts a new auto detailing business. He obtains a loan for $10,000 and uses the funds to build a small workshop in his backyard and to buy tools and supplies. At this point, his assets are _____, liabilities are _____, and owners' equity is _____.
A) $10,000; $5000; $15,000
B) $10,000; $10,000; $0
C) $5000; $0; $5000
D) $10,000; $5000; $5000

Question

Quizplus · Accepted Answer

Assets = Liabilities + Owners' Equity

At the start of the business, Chase's assets are the value of the loan he received, which is $10,000. This is also his liabilities, as he owes the full amount to the lender.

Since this is a new business and Chase is the sole owner, there is no additional equity yet. Therefore, his owners' equity is $0.

Using the accounting equation, we can see that:

$10,000 (Assets) = $10,000 (Liabilities) + $0 (Owners' Equity)

Therefore, choice B is the correct answer.

Chase Starts a New Auto Detailing Business