If total assets decreased by $88,000 during a period of time and stockholders' equity increased by $65,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total liabilities is
A) $23,000 increase
B) $88,000 decrease
C) $153,000 increase
D) $153,000 decrease

Question

Quizplus · Accepted Answer

The accounting equation states that Assets = Liabilities + Stockholders' Equity. Therefore, if total assets decrease by $88,000 and stockholders' equity increases by $65,000, then there must be a corresponding decrease in total liabilities. The change in total liabilities can be calculated as follows:

Assets = Liabilities + Stockholders' Equity 
-$88,000 = x + $65,000 
x = -$153,000

Therefore, total liabilities decreased by $153,000 during the period.

If Total Assets Decreased by $88,000 During a Period of Time