Question

Virginia Co. purchased equipment for cash on March 25 of this year. How does this transaction affect the accounting equation on March 25?

a. Total assets increase, no change in total liabilities, and total stockholders' equity increases
b. Total assets increase, total liabilities increase, and total stockholders' equity increases
c. Total assets increase, total liabilities increase, and no change in total stockholders' equity
d. No change in total assets, total liabilities increase, and total stockholder's equity decreases
e. No change in total assets, no change in total liabilities, no change in total stockholders' equity

Answer 1

The purchase of equipment for cash by Virginia Co. results in no change to the total assets, total liabilities, and total stockholders' equity in the accounting equation, as the increase in assets due to the equipment is offset by the decrease in cash assets.

Step-by-step explanation:

When Virginia Co. purchased equipment for cash on March 25, the accounting equation is affected in the following way: The total assets of the company increase due to the addition of the new equipment, but there is an equivalent decrease in assets from the cash used to pay for the equipment. As there is no change in total liabilities (since the equipment was purchased for cash, not on credit), and there is no issuance of stock or retained earnings involved in this transaction, the total stockholders' equity remains unchanged.

Therefore, the correct answer to how the transaction affects the accounting equation on March 25 is: e. No change in total assets, no change in total liabilities, no change in total stockholders' equity.