Increase in Equity Analysis

Question:

During February, assets increased by $87,000 and liabilities increased by $31,000. Equity must have:

a. increased by $56,000

b. increased by $118,000

c. decreased by $56,000

d. decreased by $118,000

Answer:

a. increased by $56,000

When analyzing the increase in equity during February, we must consider the general accounting equation:

Assets = Liabilities + Owners' Equity

From the given data, assets increased by $87,000 and liabilities increased by $31,000. To determine the change in equity, we can use the formula:

Owners' Equity = Assets - Liabilities

Therefore, the increase in stockholder's equity would be:

= $87,000 - $31,000

= $56,000

Therefore, the correct answer is that equity increased by $56,000 during February.