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

According to the accounting equation, Assets = Liabilities + Shareholders' Equity. Therefore, any increase in total assets must be offset by an equal increase in either liabilities or shareholders' equity or both. This means that no new investment is required, and an increase in total assets does not necessarily mean an increase in net working capital or shareholders' equity. Furthermore, it is not necessary for a firm to have positive net income to increase its total assets.

An Increase in Total Assets