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    Dell's Avatar
    Dell Posts: 20, Reputation: 1
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    #1

    Feb 18, 2006, 06:51 PM
    Liabilities question
    If, during an accounting period, assets increased by $80,000. And owner's equity decreased by $15,000, what change occurred to the total liabilities?

    I answered a decreased o f$65,000. But I'm not sure

    Help please.

    Dell
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
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    #2

    Feb 18, 2006, 07:27 PM
    Note:
    Assets = Liabilities + Owner's Equity

    Fiscal 2004:
    100 = 40 + 60

    Fiscal 2005:
    180 = ? + 45
    Therefore, =Liabilities = 135.

    135 is an increase of 95,000 from the previous year.

    Therefore, the answer is liabilities increased by $95,000 (if assets go up by 80, and equity is down by 15, liabilities have to go up by 80+15)
    Dell's Avatar
    Dell Posts: 20, Reputation: 1
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    #3

    Feb 18, 2006, 07:49 PM
    Thanks for the explanation.

    Dell
    mh34's Avatar
    mh34 Posts: 20, Reputation: 1
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    #4

    Feb 19, 2006, 05:39 AM
    Quote Originally Posted by Dell
    If, during an accounting period, assets increased by $80,000. and owner's equity decreased by $15,000, what change occurred to the total liabilities?

    I answered a decreased o f$65,000. but I'm not sure

    Help please.

    Dell
    A=L+OE

    $80,000=?+$15,000

    $80,000-$15,000= $65,000. That means Liabilities increased by $65,000. I don't know where Captain Forest got his numbers? If assets increased, in this problem, then they were purchased on account, and therefore liabilities are increased.
    Dell's Avatar
    Dell Posts: 20, Reputation: 1
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    #5

    Feb 19, 2006, 09:01 AM
    Thanks for explaining it.

    Dell
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
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    #6

    Feb 19, 2006, 12:48 PM
    Quote Originally Posted by mh34
    A=L+OE

    $80,000=?+$15,000

    $80,000-$15,000= $65,000. That means Liabilities increased by $65,000. I don't know where Captain Forest got his numbers? If assets increased, in this problem, then they were purchased on account, and therefore liabilities are increased.
    Mh34, you are incorrect.

    The answer is liabilities increased by $95,000

    Let me try to explain this conceptually:

    Assets = Liabilities + Owner's Equity

    If Assets INCREASES by 80,000, then (Liabilities + Owner's Equity) must increase by $80,000

    Agree?



    So If owner's equity DECREASES by 15,000, then liabilities must increase by 95,000 so that (Liabilities + Owner's Equity) increases by 80,000

    (Liabilities + Owner's Equity)
    95,000 – 15,000 = 80,000

    Therefore, liabilities MUST increase by 95,000 in this example.

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