If Total Liabilities Increased by $5,000, Then

question 2

Multiple Choice

If total liabilities increased by $5,000, then

• A) assets must have decreased by $5,000.
• B) owner's equity must have increased by $5,000.
• C) assets must have increased by $5,000, or owner's equity must have decreased by $5,000.
• D) assets and owner's equity each increased by $2,500.

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Definitions:

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting liabilities, also known as shareholders' equity.

Retained Earnings

The portion of net earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay debt.

Dividends Payable

Dividends payable are a liability on a company's balance sheet representing the amount of dividends that the company has declared but has not yet paid out to its shareholders.

Dividends Expense

The sum distributed from a portion of a company's earnings to its shareholders; often associated with preference shares.