Final answer:
The correct transaction for the Richey Company's equipment purchase would be to increase both equipment and accounts payable by the purchase amount of $40,400. The correct answer is option B.
Step-by-step explanation:
The Richey Company has purchased new equipment for $40,400, which will be paid in 30 days. The correct journal entry to record this transaction is to increase the equipment account by $40,400 and to increase accounts payable by $40,400. When a company purchases an asset like equipment and agrees to pay for it later, the asset account increases because the company now has a new item of value (the equipment), and the accounts payable increases because the company now owes money to a creditor (Office Supplies, Ind.)
Option A and D are incorrect because they mention a decrease in accounts payable, which doesn't reflect the reality of the transaction as the company has incurred a liability. Option C is incorrect as it incorrectly states an equipment decrease. The correct answer is not explicitly provided, but if we choose between the given options, option B most closely aligns with the scenario, except the amounts should reflect the actual purchase price of $40,400, not $40,000.