If liabilities increase $120,000 during a given period and shareholders' equity decreases $25,000 during the same period, assets must:
A) decrease $95,000
B) increase $95,000
C) decrease $145,000
D) increase $145,000

Question

Quizplus · Accepted Answer

The accounting equation states that Assets = Liabilities + Shareholders' Equity. If liabilities increase by $120,000 and shareholders' equity decreases by $25,000, the net change on the right side of the equation is an increase of $95,000. Therefore, to balance the equation, assets must also increase by $95,000.

If Liabilities Increase $120,000 During a Given Period and Shareholders