Asked by Kaitlyn Hearn on Apr 24, 2024
Verified
Simpson Auto Body Repair purchased $20,000 of machinery. The company paid $8,000 in cash at the time of the purchase and signed a promissory note for the remainder to be paid in four monthly installments.?
(a) How will the purchase affect the accounting equation?
(b) How will the payment of the first monthly installment affect the accounting equation (ignore interest)?
Accounting Equation
The fundamental equation representing the relationship between assets, liabilities, and equity (Assets = Liabilities + Equity) in accounting.
Promissory Note
A financial instrument in which one party promises in writing to pay a determinate sum of money to the other.
Monthly Installment
A fixed payment made every month over a set period to repay a debt.
- Gain insight into the impact that distinct transactions have on the accounting equation.
- Engage the accounting equation to evaluate the cumulative totals of assets, liabilities, and owner's equity.
Verified Answer
KM
Kaylee Marchand5 days ago
Final Answer :
(a) Increase total assets by a net amount of $12,000 (increase Machinery,$20,000 and decrease Cash, $8,000) and increase liabilities by $12,000 (NotesPayable, $12,000)?
(b) Decrease assets by $3,000 (decrease Cash,$3,000) and decrease liabilities by$3,000 (Notes Payable,$3,000)
(b) Decrease assets by $3,000 (decrease Cash,$3,000) and decrease liabilities by$3,000 (Notes Payable,$3,000)
Learning Objectives
- Gain insight into the impact that distinct transactions have on the accounting equation.
- Engage the accounting equation to evaluate the cumulative totals of assets, liabilities, and owner's equity.