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4 February, 06:03

Purchasing a building for $ 80 comma 000 by paying cash of $ 30 comma 000 and signing a note payable for $ 50 comma 000 will

A. increase both total assets and total liabilities by $ 80 comma 000.

B. increase both total assets and total liabilities by $ 50 comma 000.

C. decrease total assets and increase total liabilities by $ 30 comma 000.

D. decrease both total assets and total liabilities by $ 30 comma 000.

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Answers (1)
  1. 4 February, 07:29
    0
    B. Increase both total assets and total liabilities by $50, 000

    Explanation:

    This can be best explained using accounting equation:

    Asset = Liabilities + Equity

    Purchasing a building means acquiring an asset which is an increase in asset, paying with cash is a decrease in asset and issuing note payable is an increase in liability.

    On the record of this transaction, the account equation will look like this:

    Asset = Liability + Equity

    Building ($80,000) - Cash ($30,000) = Note Payable ($50,000)

    Increase Increase

    So the equation set off to increase of $50,000 in total asset and total liabilities.
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Home » Business » Purchasing a building for $ 80 comma 000 by paying cash of $ 30 comma 000 and signing a note payable for $ 50 comma 000 will A. increase both total assets and total liabilities by $ 80 comma 000. B.
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