If total liabilities increased by $6000 then
A) assets must have decreased by $6000.
B) owner's equity must have increased by $6000.
C) assets must have increased by $6000 or owner's equity must have decreased by $6000.
D) assets and owner's equity each increased by $3000.

Question

Quizplus · Accepted Answer

The increase in liabilities means that there was an increase in the amount of debts owed by the company. This could have been from taking out a loan, issuing more bonds, or simply not paying off bills. Regardless, this increase in liabilities must be balanced out by a corresponding increase in either assets or owner's equity. Therefore, either the company acquired $6000 worth of new assets to offset the increase in debt, or the owner invested $6000 of their own money into the company to increase the owner's equity. Therefore, option C is the correct answer, as it explains the two possible scenarios. Option A is not correct, as it assumes that the decrease in assets was the only way to balance out the increase in liabilities, which may not be the case. Option B is not correct, as an increase in owner's equity does not necessarily mean that liabilities have increased. Option D is not correct, as it assumes that both assets and owner's equity each increased by $3000, which is not necessarily the case.

If Total Liabilities Increased by $6000 Then