If Total Liabilities Increased By $8,000, Then | MCQ Question Answer

The correct answer of this MCQ is (c), as to equalize Accounting Equation i.e., Assets = Liabilities + Stockholders’ Equity), we either have to increase total assets by $8000 or we have a choice to decrease stockholders’ equity by $8000.

(a). To prove it, firstly, we choose “Assets must be increased by $8000”. By applying accounting equation, we get:

   Assets       =       Liabilities     +           Stockholders’ Equity

Change In Assets = Change In Liabilities + Change In Stockholders’ Equity

  +$8000      =         +$8000        +   Change In Stockholders’ Equity
 
  +$8000      =         +$8000        +                             0

Change In Stockholders’ Equity = +$8000 - $8000 = 0

Hence, the accounting equation is in balance i.e., Left side is equal to right side.

(b). Now, we must “Decrease Stockholders’ Equity by $8000”.

As we know:

                                Assets                  =     Liabilities    +   Stockholders’ Equity

Putting the value in accounting equation, we have:

                  Change In Total Assets   =      +$8000       +              (-$8000)
 
                                    0                        =                           0

Change In Total Assets = +$8000 - $8000 = 0

Hence, the accounting equation remains in balance.