Based on a balance sheet with total assets of $25,000,000 and total liabilities of $10,000,000, what is the total equity (net assets)?

• A. 5,000,000
• B. 15,000,000
• C. 25,000,000
• D. 10,000,000

Answer: (B)

On a balance sheet, assets must equal the sum of liabilities and equity, with equity representing what remains after obligations are paid. Here, total assets are 25,000,000 and total liabilities are 10,000,000, so equity (net assets) is 25,000,000 minus 10,000,000, which equals 15,000,000. This reflects the residual claim of owners after liabilities are satisfied. The other numbers wouldn’t balance the sheet with the given totals: for example, 5,000,000 of equity would require assets of 15,000,000 with 10,000,000 in liabilities, not 25,000,000; 25,000,000 of equity would need 35,000,000 in assets; and 10,000,000 of equity would imply only 20,000,000 in assets. Therefore, the total equity is 15,000,000.