Rosetta listed her assets and liabilities on a personal balance sheet. If Rosetta sells her house and pays off the mortgage, how much should she receive (assuming there are no other costs associated with selling the house)?

• A. $50,000
• B. $75,000
• C. $25,000
• D. $0

Answer: (A)

The main idea here is equity in an asset. On a personal balance sheet, your assets minus your liabilities equal your net worth. When you sell an asset that has a loan tied to it, the cash you walk away with is the sale price minus the loan payoff.

If the house sells for seventy-five thousand dollars and the mortgage balance is twenty-five thousand dollars, paying off the mortgage leaves fifty thousand dollars for Rosetta. So she would receive fifty thousand dollars. This reflects the remaining equity after the loan is satisfied. The other numbers would only fit if the house value or the loan amount were different (e.g., a higher mortgage or a lower sale price).