Question

Purchasing a building for $ 80 comma 000 by paying cash of $ 30 comma 000 and signing a note payable for $ 50 comma 000 will

A. increase both total assets and total liabilities by $ 80 comma 000.
B. increase both total assets and total liabilities by $ 50 comma 000.
C. decrease total assets and increase total liabilities by $ 30 comma 000.
D. decrease both total assets and total liabilities by $ 30 comma 000.

Answer 1

B. Increase both total assets and total liabilities by $50, 000

Step-by-step explanation:

This can be best explained using accounting equation:

Asset = Liabilities + Equity

Purchasing a building means acquiring an asset which is an increase in asset, paying with cash is a decrease in asset and issuing note payable is an increase in liability.

On the record of this transaction, the account equation will look like this:

Asset = Liability + Equity

Building ($80,000) - Cash ($30,000) = Note Payable ($50,000)

Increase Increase

So the equation set off to increase of $50,000 in total asset and total liabilities.