Question

Ava’s SpinBall Corp. lists fixed assets of $15 million on its balance sheet. The firm’s fixed assets have recently been appraised at $22 million. Ava’s SpinBall Corp.’s balance sheet also lists current assets at $8 million. Current assets were appraised at $12 million. Current liabilities’ book and market values stand at $6 million and the firm’s book and market values of long-term debt are $11 million. Calculate the book and market values of the firm’s stockholders’ equity. Construct the book value and market value balance sheets for Ava’s SpinBall Corp.

Answer 1

Using the accounting equation we can calculate the book value and market value of stockholder's equity
Stockholder's equity	Total assets - Total liabilities
Calculation of book value of stockholder's equity
Total assets	$23.00	(15+8)
Total liabilities	$17.00	(6+11)
Stockholder's equity	$6.00	million
Calculation of market value of stockholder's equity
Total assets	$34.00	(22+12)
Total liabilities	$17.00	(6+11)
Stockholder's equity	$17.00	million
Balance sheet reflecting book value and market value is shown below
balance sheet showing book value is shown below
Balance sheet (In million)
Assets		Liabilities and equity
Current assets	$8.00	Current liabilities	$6.00
Fixed assets	$15.00	Long term debt	$11.00
		Stockholder's equity	$6.00
Total	$23.00	Total	$23.00
balance sheet showing market value is shown below
Balance sheet (In million)
Assets		Liabilities and equity
Current assets	$12.00	Current liabilities	$6.00
Fixed assets	$22.00	Long term debt	$11.00
		Stockholder's equity	$17.00
Total	$34.00	Total	$34.00