Indirect Oil Co.reports these account balances at December 31,2014 On January 2,2015,Indirect Oil collected $25,000 of its accounts receivable and paid $20,000 of its accounts payable.On January 3,2015,total liabilities are:

Question

Indirect Oil Co.reports these account balances at December 31,2014  On January 2,2015,Indirect Oil collected $25,000 of its accounts receivable and paid $20,000 of its accounts payable.On January 3,2015,total liabilities are:

Quizplus · Accepted Answer

Starting with the given account balances, we have: 
Accounts Receivable = $75,000 
Accounts Payable = $50,000 
Therefore, the total liabilities before the transactions on January 2nd and 3rd were: 
Total Liabilities = Accounts Payable = $50,000 
On January 2nd, Indirect Oil collected $25,000 of its accounts receivable, which reduces the balance to $50,000 ($75,000 - $25,000). 
On that same day, they also paid $20,000 of their accounts payable, which reduces the balance to $30,000 ($50,000 - $20,000). 
Therefore, the total liabilities as of January 3rd are: 
Total Liabilities = Accounts Payable = $30,000 
So, the best choice is B, which is $165,000 (the sum of all account balances, which includes the $135,000 of equity).