Which of the following statements should be considered to maximize owner's equity value according to the fundamental accounting equation?

• A. Increase assets while keeping liabilities constant or decreasing liabilities.
• B. Decrease both assets and liabilities by the same amount.
• C. Increase expenses to reduce net income.
• D. Increase liabilities while keeping assets constant.

Answer: (A)

Verified step by step guidance

1. Understand the fundamental accounting equation: Assets = Liabilities + Owner's Equity. This equation shows the relationship between a company's resources (assets), obligations (liabilities), and the residual interest of the owners (owner's equity).
2. To maximize owner's equity, focus on increasing the difference between assets and liabilities. Owner's equity increases when assets grow or liabilities decrease, as per the equation.
3. Evaluate the first option: Increasing assets while keeping liabilities constant or decreasing liabilities will increase owner's equity because the net difference (Assets - Liabilities) grows.
4. Evaluate the second option: Decreasing both assets and liabilities by the same amount does not change owner's equity because the net difference remains the same.
5. Evaluate the remaining options: Increasing expenses reduces net income, which ultimately decreases owner's equity. Similarly, increasing liabilities while keeping assets constant reduces owner's equity because liabilities grow without a corresponding increase in assets.