Question

If a company purchases equipment for $65,000 by issuing a note payable, what will happen to the total assets?

1) Total assets will increase by $65,000
2) Total assets will decrease by $65,000
3) Total assets will remain the same
4) Total owners' equity will decrease

Answer 1

The total assets will remain the same when a company purchases equipment by issuing a note payable as it is an asset swap of equal value.

Step-by-step explanation:

When a company purchases equipment for $65,000 by issuing a note payable, the total assets will remain the same. This is because one asset, the equipment, increases by $65,000, while another asset, which could be cash or the ability to borrow (if the note is considered a short-term asset), decreases by an equal amount due to the creation of a liability (the note payable). The transaction is an asset swap which has no immediate effect on the total assets or owners' equity. However, it does increase long-term assets (equipment) and liabilities (note payable).

When a company purchases equipment for $65,000 by issuing a note payable, the total assets will increase by $65,000. This is because the equipment is considered an asset and adding it to the company's balance sheet increases the total assets.