Grand Metropolitan is a consumer foods company headquartered in the United Kingdom.It has followed the common practice in the U.K.of treating expenditures on product development, quality control, and advertising as an expense each year.Grand Metropolitan has now decided to recognize the full value of its brand names as an asset on the balance sheet as of September 30, Year 6.To keep the balance sheet in balance and in accordance with U.K.practice, Grand Metropolitan will likely
A)decrease some other asset.
B)increase a current liability.
C)increase a noncurrent liability.
D)increase shareholders' equity.
E)decrease shareholders' equity.

Question

Quizplus · Accepted Answer

To keep the balance sheet in balance, Grand Metropolitan will need to increase an asset or decrease a liability. However, since the company is recognizing the full value of its brand names as an asset, it will increase shareholders' equity to balance the transaction. This is because assets must always equal liabilities plus shareholders' equity according to the accounting equation.

Grand Metropolitan Is a Consumer Foods Company Headquartered in the United