Question

"Which of the following could describe the effects of an asset exchange transaction on a company's total assets, total liabilities and total equity?

Assets = Liab. + Equity
A. NA = NA + NA
B. + = NA + +
C. − = NA + −
D. NA = NA + + −"

Answer 1

The effects of an asset exchange transaction on a company's financials, where 'NA' stands for no change and '+' or '-' indicate an increase or decrease respectively, are best described by option B: total assets remain unchanged, total liabilities remain unchanged, and total equity remains unchanged.

Step-by-step explanation:

When considering the effects of an asset exchange transaction on a company's total assets, liabilities, and equity, the correct description is given by choice B. An asset exchange transaction involves swapping one asset for another, which does not change the total amount of assets, but may change the composition of those assets.

Therefore, if a company exchanges one asset for another of equal value, the transaction would not affect total assets (NA), liabilities (NA), or total equity (NA). However, if an asset is swapped for a less valuable asset, then total assets decrease (-), but total liabilities remain the same (NA), and total equity decreases (-), which is not one of the options provided.