If total liabilities increased by $8,000, then
A) assets must have decreased by $8,000.
B) stockholders' equity must have increased by $8,000.
C) assets must have increased by $8,000, or stockholders' equity must have decreased by $8,000.
D) assets and stockholders' equity each increased by $4,000.

Question

Quizplus · Accepted Answer

Total liabilities can be financed either by assets or stockholders' equity. Therefore, when total liabilities increase, either assets must increase or stockholders' equity must decrease. Hence, option C is correct. Option A and D are incorrect because liabilities may not have any effect on assets or stockholders' equity. Option B is also incorrect because an increase in liabilities does not necessarily mean an increase in stockholders' equity.

If Total Liabilities Increased by $8,000, Then