When a company buys equipment for $150,000 and pays for one third in cash and the other two thirds is financed by a note payable, which of the following are the effects on the accounting equation?

A. Total assets decrease $50,000.

B. Total liabilities increase $150,000.

C. Total liabilities decrease $50,000.

D. Total assets increase $100,000

Question

Asher Morris

Business

2 July, 20:56

When a company buys equipment for $150,000 and pays for one third in cash and the other two thirds is financed by a note payable, which of the following are the effects on the accounting equation?

A. Total assets decrease $50,000.

B. Total liabilities increase $150,000.

C. Total liabilities decrease $50,000.

D. Total assets increase $100,000

+2

Answers (1)

Know the Answer?

Ashton Johnson · Answer 1

D. Total assets increase $100,000

Explanation:

When a company buys equipment for 150,000, its asset first increases by 150,000 because it is adding an asset to its asset list which is worth 150,000 but because one third is paid in cash which is an asset, the asset column decreases by (1/3*150,000) = 50,000 as 50,000 cash is leaving the company. SO total assets increase by 100,000.