Final answer:
When Mayfly Company collects $42,000 cash on its accounts receivable, the effects on the accounting equation are that assets increase and liabilities decrease.
Step-by-step explanation:
When Mayfly Company collects $42,000 cash on its accounts receivable, it affects the accounting equation as follows:
- Assets increase: Cash, which is an asset, increases by $42,000.
- Liabilities decrease: There is no change in liabilities since the cash collected does not impact any debts or obligations.
Therefore, the correct answer is 2) Assets increase, liabilities decrease.