Which of the following statements is TRUE?
A) If the liabilities owed by a business total $650 000, then the assets also total $650 000.
B) If the assets owned by a business total $500 000, then shareholders' equity also totals $500 000.
C) If the assets owned by a business total $190 000 and liabilities total $50 000, then shareholders' equity totals $140 000.
D) If the assets owned by a business total $90 000 and liabilities total $50 000, then shareholders' equity totals $140 000.

Question

Quizplus · Accepted Answer

The total assets of a business are equal to its total liabilities plus its shareholders' equity. Therefore, if the assets are $190 000 and the liabilities are $50 000, then the shareholders' equity must be $140 000 (Assets = Liabilities + Shareholders' equity). Choices A and B are not true because they assume that the assets and liabilities are equal to the shareholders' equity, which is not always the case. Choice D is incorrect because it adds the liabilities and shareholders' equity to get the total assets, which is not the correct formula.

Which of the Following Statements Is TRUE