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Skye listed her assets and liabilities on a personal balance sheet.




\multicolumn{4}{|c|}{Skye's Balance Sheet (April 2013)}

\multicolumn{2}{|c|}{Assets}		\multicolumn{2}{|c|}{Liabilities}

cash		\$1,000credit card\$4,000

investments		\$1,000student loan\$1,000

house		\$200,000mortgage\$100,000

Car		\$8,000car loan\$5,000

Total		???Total???

\multicolumn{4}{|c|}{Net Worth: ???}






What is Skye's net worth?


A\$320,000
B\$110,000
C\$210,000
D\$100,000

Verified Answer :

  • Sum all of Skye's assets: \(\$1,000 + \$1,000 + \$200,000 + \$8,000 = \$210,000\).
  • Sum all of Skye's liabilities: \(\$4,000 + \$1,000 + \$100,000 + \$5,000 = \$110,000\).
  • Subtract the total liabilities from total assets to find the net worth: \(\$210,000 - \$110,000 = \$100,000\).
  • The final answer is \(\boxed{\$100,000}\) (Option d).

Explanation

  1. Analysis of Assets and Liabilities

To determine Skye's net worth, we first need to identify and sum her total assets and her total liabilities. According to the balance sheet provided:

  • Assets:
  • Cash: \(\$1,000\)
  • Investments: \(\$1,000\)
  • House: \(\$200,000\)
  • Car: \(\$8,000\)
  • Liabilities:
  • Credit card: \(\$4,000\)
  • Student loan: \(\$1,000\)
  • Mortgage: \(\$100,000\)
  • Car loan: \(\$5,000\)

The formula for Net Worth is:
\[\text{Net Worth} = \text{Total Assets} - \text{Total Liabilities}\]

  1. Calculation of Totals

Now, let us calculate the total value for each category:

  • Total Assets:

\[\$1,000 + \$1,000 + \$200,000 + \$8,000 = \$210,000\]

  • Total Liabilities:

\[\$4,000 + \$1,000 + \$100,000 + \$5,000 = \$110,000\]
With these totals, we can determine the net worth by subtracting the total liabilities from the total assets.

  1. Determining the Net Worth

Finally, calculate the net worth using the values obtained in the previous step:
\[\text{Net Worth} = \$210,000 - \$110,000 = \$100,000\]
Comparing this result to the given options:

A\(\$320,000\)
B\(\$110,000\)
C\(\$210,000\)
D\(\$100,000\)

The result matches option (d). Thus, Skye's net worth is \(\$100,000\).

Examples

Understanding personal net worth is crucial for financial planning. Just as Skye calculated her net worth to get a snapshot of her financial health, individuals use this calculation to track progress toward goals like buying a home or retiring. By regularly updating your assets (what you own) and liabilities (what you owe), you can make informed decisions about saving, investing, and managing debt. For example, if your total assets equal \(\$50,000\) and your total debts are \(\$20,000\), your net worth is \(\$50,000 - \$20,000 = \$30,000\).

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