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

Question

Quizplus · Accepted Answer

The accounting equation is Assets = Liabilities + Shareholders' equity.
If assets increase $120,000 and liabilities decrease $25,000, we can calculate the change in shareholders' equity as follows:
Assets = Liabilities + Shareholders' equity
$120,000 = -$25,000 + Shareholders' equity
Shareholders' equity = $145,000
Therefore, the shareholders' equity must increase by $145,000. The answer is D.

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