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26 February, 18:18

If the liabilities of a business increased $75,000 during a period of time and the owner's equity in the business decreased $30,000 during the same period, the assets of the business must have: A. Decreased $105,000. B. Decreased $45,000. C. Increased $30,000. D. Increased $45,000. E. Increased $105,000.

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  1. 26 February, 22:04
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    D. Increased $45,00

    Explanation:

    Assume that the total assets of the business was $100,000 and the liabilities was $50,000 and the equity was also $50,000. These figures can be expressed in terms of the accounting equation as follows:

    Total assets=Total liabilities+Total equity

    100,000=50,000+50,000

    Now consider that the above mentioned liabilities are increased by $75,000 as stated in question and above mentioned equity is decreased by $30,000 as stated in question, then the assets as per accounting equation can be determined as follows:

    Total liabilities=50,000+75,000=$125,000

    Total equity=50,000-30,000=$20,000

    Assets=$125,000+$20,000=145,000

    Total increase in assets=$145,000-$100,000=$45,000

    So the answer is D. Increased $45,000
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