Chevelle, Inc., is obligated to pay its creditors $8,400 during the year. (Enter your answer as directed, but do not round intermediate calculations.)

Chevelle, Inc., is obligated to pay its creditors $8,400 during the year. (Enter your answer as directed, but do not round intermediate calculations.)

Required:

(a)	What is the value of the shareholders’ equity if assets equal $9,300?

Shareholders’ equity

$

(b)	What is the value of the shareholders’ equity if assets equal $6,900?

Shareholders’ equity

$

Explanation:

Owners' equity is the maximum of total assets minus total liabilities, or zero. Although the book value of owners’ equity can be negative, the market value of owners’ equity cannot be negative, so:

Owners’ equity = Max [(TA – TL), 0]

(a)

If total assets are $9,300, the owners’ equity is:

Owners’ equity = Max[($9,300 – 8,400), 0]

Owners’ equity = $900

(b)

If total assets are $6,900, the owners’ equity is:

Owners’ equity = Max[($6,900 – 8,400), 0]

Owners’ equity = $0