Question

If total liabilities decreased by $50,000 and stockholders' equity increased by $10,000 during a period of time, then total assets must change by what amount and direction during that same time period? Multiple Choice $60,000 increase $40,000 increase $40,000 decrease $60,000 decrease

Answer 1

Answer:

The answer is $40,000 decrease

Explanation:

According to the accounting equation = asset equals liabilities minus equity

In this case, If total liabilities decreased by $50,000 and stockholders' equity increased by $10,000 then the total assets must decrease in $40,000

What happens on one side of the equation affects the other side of the equation.

$10,000 - $50,000 = -$40,000

If it decreases on the side of equity and the liability then it also decreases on the side of the asset