Delta Company purchased an equipment by signing a note with the bank for $20,000. Which of the following statements correctly show the effect of this transaction on the accounting equation?

a. Assets will increase by $20,000, liabilities will decrease by $20,000, and stockholders equity will remain unchanged.

b. Assets will increase by $20,000, liabilities will increase by $20,000, and stockholders' equity will remain unchanged.

c. Assets will decrease by $20,000, liabilities will increase by $20,000, and stockholders' equity will remain unchanged.

d. Liabilities will increase by $20,000, stockholders' equity will decrease by $20,000, and assets will remain unchanged.

Question

Business

Frederick Goodman

1 May, 18:44

Delta Company purchased an equipment by signing a note with the bank for $20,000. Which of the following statements correctly show the effect of this transaction on the accounting equation?

a. Assets will increase by $20,000, liabilities will decrease by $20,000, and stockholders equity will remain unchanged.

b. Assets will increase by $20,000, liabilities will increase by $20,000, and stockholders' equity will remain unchanged.

c. Assets will decrease by $20,000, liabilities will increase by $20,000, and stockholders' equity will remain unchanged.

d. Liabilities will increase by $20,000, stockholders' equity will decrease by $20,000, and assets will remain unchanged.

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Answers (1)

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Holden Burnett · Answer 1

(B) Assets will increase by $20,000, liabilities will increase by $20,000, and stockholders' equity will remain unchanged

Explanation:

Signing a note of $20,000 with a bank to purchase an equipment will have the following double entry in the books of the borrower.

Debit Equipment (asset) account $20,000 (an increase in assets)

Credit Bank Notes (liability) account $20,000 (an increase in liabilities).