Six years ago, Thompson Distributors purchased a mailing machine at a cost of $368,000. This equipment is currently valued at $172,200 on today's statement of ﬁnancial position but could
Actually be sold for $211,400. This is the only ﬁxed asset the ﬁrm owns. Net working capital is
$121,000 and long-term debt is $82,500. What is the book value of shareholders' equity?

Question

Quizplus · Accepted Answer

Book value of shareholders' equity is equal to the total assets minus total liabilities. Total assets include the value of the mailing machine which is currently valued at $172,200. If the mailing machine were sold for its actual value of $211,400, the total assets would increase by $39,200. Therefore, the total assets would be $172,200 + $39,200 = $211,400. Total liabilities are equal to the long-term debt, which is $82,500. Thus, the book value of shareholders' equity is: 
$211,400 (total assets) - $82,500 (long-term debt) = $128,900
But we also know that the net working capital is $121,000. If we add this amount to the book value of shareholders' equity, we get:
$128,900 + $121,000 = $249,900
Therefore, the book value of shareholders' equity is $249,900. Choice B is the correct answer.

Six Years Ago, Thompson Distributors Purchased a Mailing Machine at a Cost