Zion Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. It buys office equipment on credit for $75,000. What would be the effects of this transaction on the accounting equation?

a. Assets increase by $75,000 and expenses increase by $75,000.

b. Assets increase by $75,000 and expenses decrease by $75,000.

c. Liabilities increase by $75,000 and expenses decrease by $75,000.

d. Assets decrease by $75,000 and expenses decrease by $75,000.

e. Assets increase by $75,000 and liabilities increase by $75,000.

Question

Business

Donald Farley

11 May, 06:23

Zion Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. It buys office equipment on credit for $75,000. What would be the effects of this transaction on the accounting equation?

a. Assets increase by $75,000 and expenses increase by $75,000.

b. Assets increase by $75,000 and expenses decrease by $75,000.

c. Liabilities increase by $75,000 and expenses decrease by $75,000.

d. Assets decrease by $75,000 and expenses decrease by $75,000.

e. Assets increase by $75,000 and liabilities increase by $75,000.

+1

Answers (1)

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Kyler Huffman · Answer 1

e. Assets increase by $75,000 and liabilities increase by $75,000.

Explanation:

The purchase of the asset (office equipment) on credit would result in the following entries;

Debit Office equipment $75,000

Credit Creditor $75,000

Being entries to recognize the purchase of office equipment on credit.

As such, asset increases by $75,000 while liabilities also increase by the same amount.

Option e.