Question

Zion Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. It buys office equipment on credit for $75,000. What would be the effects of this transaction on the accounting equation?

a. Assets increase by $75,000 and expenses increase by $75,000.
b. Assets increase by $75,000 and expenses decrease by $75,000.
c. Liabilities increase by $75,000 and expenses decrease by $75,000.
d. Assets decrease by $75,000 and expenses decrease by $75,000.
e. Assets increase by $75,000 and liabilities increase by $75,000.

Answer 1

e. Assets increase by $75,000 and liabilities increase by $75,000.

Step-by-step explanation:

The purchase of the asset (office equipment) on credit would result in the following entries;

Debit Office equipment $75,000

Credit Creditor $75,000

Being entries to recognize the purchase of office equipment on credit.

As such, asset increases by $75,000 while liabilities also increase by the same amount.

Option e.