BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$10, 000 decrease
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$10, 000 increase
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$50, 000 decrease
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$50, 000 increase
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Detailed explanation-1: -If total liabilities decreased by $4, 000, reasonable movements in the accounting equation would be an increase in equity by $4, 000, or a decrease in total assets by $4, 000.
Detailed explanation-2: -All else being equal, a company’s equity will increase when its assets increase, and vice-versa. Adding liabilities will decrease equity while reducing liabilities-such as by paying off debt-will increase equity. These basic concepts are essential to modern accounting methods.
Detailed explanation-3: -If total liabilities decreased by $75, 000 and stockholders’ equity increased by $20, 000 during a period of time, then total assets must change by what amount and direction during that same period? ($75, 000) + $20, 000 = ($55, 000).
Detailed explanation-4: -Owner’s Equity is defined as the proportion of the total value of a company’s assets that can be claimed by its owners (sole proprietorship or partnership) and by its shareholders (if it is a corporation). It is calculated by deducting all liabilities from the total value of an asset (Equity = Assets – Liabilities).