Gordon Company's total assets increased by $60,000 during the year, and its liabilities decreased by $35,000. Did Gordon's stockholders' equity increase or decrease? By how much?

Gordon's stockholders' equity increased by $95,000.

Explanation:

The accounting equation shows the relationship between the three classes of items in the balance sheet namely; assets, liabilities and equity

The relationship is given as;

Assets = liabilities + equity

Let the total assets at the start of the year be a, total liabilities b and total equity be c at the start of the year. As such, at the beginning of the year,

a = b + c,

c = a - b

If during the year, total assets increased by $60,000 and its liabilities decreased by $35,000, then;

a + 60000 = b - 35000 + c

c = a - b + 60000 + 35000

c = a - b + 95000

From the equation above, Gordon's stockholders' equity increased by $95,000.