Assets are 100 and expected to grow by 10 liabilities and ow

Assets are 100 and expected to grow by 10% liabilities and owner’s equity are 100 and expected to grow by .06. the plug for the first pro forma year is?

A. Liability plus

B. Cash plug

C. Neither a nor b

Please explain and show me why the answer you pick is the answer

Solution

A:Liability plus

The accounting equation is Assets= Liabilities + Owners equity.Since there is a difference between assets and liabilities and owner’s equity, the only way to satify the additional need of extra assets is to take on more debt. Hence there will be additional debt taken up by the company which will increase the liabilities figure.