Question

A company’s liabilities increased by $60,000 and stockholders’ equity increased by $25,000. What would be the change in this company’s assets? (Hint: Use the accounting equation to solve this problem).
a) $35,000 increase
b) $85,000 increase
c) $103,000 increase
d) $112,000 increase

Answer 1

Accounting Equation:

Total Assets = Total liabilites and Shareholders' equity

Total Assets = Total liabilities + Total Shareholder's equity

So, Increase in liabilites and Increase in stockholders' equity would lead lead to increase in the total assets

i.e. as follows:

Increase in Liablities	60,000
Increase in stockholders' equity	25,000
Total Increase in liabilites and stockholders' equity	85,000

So Total increase in liabilites and stochkholders' equity is $85,000

Therefore, Total Assets increase by $85,000.

Total Assets = Total liabilities and Stockholders' equity

85,000 = 85,000

Answer b) $85,000 Increase