If total assets decrease, then
A)liabilities must increase and retained earnings must decrease.
B)common stock must decrease and retained earnings must increase.
C)liabilities, common stock, or retained earnings must decrease.
D)liabilities, common stock, or retained earnings must increase.

Question

Quizplus · Accepted Answer

Total assets can decrease due to many reasons such as sale of assets or depreciation. If total assets decrease, it does not necessarily mean that liabilities have increased, rather it could be due to a decrease in common stock or retained earnings. Hence, the best choice is C, which states that either liabilities, common stock, or retained earnings must decrease.

If Total Assets Decrease, Then