If total assets decreased by $88,000 during a period of time and owner's equity increased by $71,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total liabilities would be a
(n)
A) $17,000 increase
B) $88,000 decrease
C) $159,000 increase
D) $159,000 decrease

Question

Quizplus · Accepted Answer

The accounting equation is Assets = Liabilities + Owner's Equity. If total assets decreased by $88,000 and owner's equity increased by $71,000, then we can calculate the change in total liabilities as follows:

Assets = Liabilities + Owner's Equity 
Assets - $88,000 = Liabilities + (Owner's Equity + $71,000) 
Assets - $88,000 = Liabilities + Owner's Equity + $71,000 
Assets - $88,000 = Liabilities + $71,000  (substitute in the given values) 
Liabilities = Assets - $88,000 - $71,000 
Liabilities = Assets - $159,000

Since assets decreased, we know that total liabilities must also have decreased in order to balance the equation. Therefore, the amount and direction of the period's change in total liabilities is a $159,000 decrease.

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