Question

If total liabilities decreased by 46,000 during a period of time and owner's equity increased by 60,000 during the same period, what is the amount and direction (increase or decrease) of the period's change in total assets?

1) 106,000 increase
2) 14,000 increase
3) 14,000 decrease
4) 106,000 decrease

Answer 1

The period's change in total assets is an increase of $14,000, which is calculated as the decrease in liabilities of $46,000 combined with the increase in owner's equity of $60,000.

Step-by-step explanation:

The question is asking to calculate the change in total assets based on the changes in total liabilities and owner's equity. According to the accounting equation, Assets = Liabilities + Owner's Equity. The decrease in total liabilities by $46,000 and the increase in owner's equity by $60,000 would result in an increase in total assets. These changes are added together to find the total change in assets. Therefore, the amount and direction of the period's change in total assets are an increase of $14,000 (Option 2). This is because a decrease in liabilities effectively 'increases' assets, and an increase in owner's equity also 'increases' assets. The net effect is computed as -$46,000 (decrease in liabilities) + $60,000 (increase in owner's equity) = $14,000 increase in assets.