Asked by Kameron Teague on Jul 28, 2024
Verified
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
Total Assets
The complete sum of everything a company owns or controls that has economic value, shown on the balance sheet.
Owner's Equity
Owner's equity is the residual interest in the assets of the entity after deducting liabilities, representing what the owners or shareholders own outright.
Total Liabilities
The combined amount of all debts and other financial obligations owed by an entity at a given time.
- Assess how varied transactions affect the components of the accounting equation.
Verified Answer
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.
Learning Objectives
- Assess how varied transactions affect the components of the accounting equation.
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