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If the liabilities of a business increased $75,000 during a period of time and the owner's equity in the business decreased $30,000 during the same period, the assets of the business must have: a
If the liabilities of a business increased $75,000 during a period of time and the owner's equity in the business decreased $30,000 during the same period, the assets of the business must have:
a. Decreased $105,000
b. Decreased $45,000
c. Increased $30,000
d. Increased $45,000
e. Increased $105,000
Expert Solution
Assume,
Beginning total assets = $200,000
Beginning equity = $100,000
Beginning liabilities = $100,000
Ending liabilities = Beginning liabilities + Liabilities increased
Ending liabilities = 100,000 + 75,000
Ending liabilities = $175,000
Ending equity = Beginning equity - Equity decreased
Ending equity = 100,000 - 30,000
Ending equity = $70,000
Ending assets = Ending liabilities + Ending equity
Ending assets = 175,000 + 70,000
Ending assets = $245,000
Increase in assets = Ending assets - Beginning total assets
Increase in assets = 245,000 - 200,000
Increase in assets = $45,000
Option d is correct.
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