Accounting question. Please help. Need step by step answer.

Question

On January 1, 2020, total assets for Books Inc. were $100,000; on January 31, 2020, total assets were $110,000. On January 1, 2020, total liabilities were $60,000. Book Inc. earned $20,000 in earnings during January. There were no dividends or changes in common shares during January.

What is the change in Book Inc.s’ liabilities for January 2020?

Answer 1

Assets = Liabilities + Stockholder's Equity

This formula is the basis for all of accounting, memorize it!

We have the following information for 1/1/2020:

Assets - $100,000

Liabilities - $60,000

Equity - According to the formula above, equity at 1/1/2020 must be $40,000! ($100,000 = $60,000 + $40,000)

During January we earned $20,000 (This increases equity!)

We have the following information for 1/31/2020:

Assets: $110,000

Liabilities: ?

Equity: $60,000 ($40,000 from 1/1/2020 plus the $20,000 we earned)

This means that our liabilities at 1/31/2020 must be $50,000! ($110,000 = $50,000 + $60,000)

The question asks for the change in liabilities:

Beginning: $60,000

Ending: $50,000

Our liabilities decreased by $10,000 during January!