Final answer:
The student's question relates to the basic accounting equation, where the correct relationship is Assets = Liabilities + Stockholders' Equity. This remains true for the purchase of a building, as well as in the provided examples relating to the market value of houses versus amounts owed to the bank.
Step-by-step explanation:
The student asked a question regarding the accounting equation which relates to assets, liabilities, and stockholders' equity. When a building is purchased for $168,000 with $67,000 paid in cash and the rest financed through a note, the assets of the company increase by the full cost of the building ($168,000), while the cash portion reduces current assets and the note increases liabilities. Therefore, the correct statement would be option a: Assets = Liabilities + Stockholders' Equity. Assets do not become less or more than the sum of liabilities and stockholders' equity purely because of this transaction.
Additionally, when looking at the supplementary examples provided:
- Freda's house would have an equity value of $250,000, as it is fully paid off and this is its current market value.
- Frank's house has a market value of $160,000, with a remaining bank liability of $60,000, leaving him with equity of $100,000.
The accounting equation in all these scenarios remains balanced, as assets equal the sum of liabilities and stockholders' equity.