An increase in total assets:
A) Means that net working capital is also increasing.
B) Requires an investment in ﬁxed assets.
C) Means that shareholders' equity must also increase.
D) Must be offset by an equal increase in liabilities and shareholders' equity.
E) Can only occur when a ﬁrm has positive net income.

Question

Quizplus · Accepted Answer

An increase in total assets must be offset by an equal increase in liabilities and shareholders' equity to maintain the balance sheet equation of Total Assets = Total Liabilities + Shareholders' Equity. Option A is incorrect because an increase in total assets does not necessarily mean an increase in net working capital. Option B is incorrect as an increase in total assets can come from investments in both fixed and current assets. Option C is incorrect because an increase in total assets can be financed by debt, thereby not requiring an increase in equity. Option E is incorrect as an increase in total assets can occur even if a firm has negative net income.

An Increase in Total Assets