Question

Matador Company purchases $1,300 of equipment from Danger Mouse Inc. for cash. Theeffect on the components of the basic accounting equation of Matador Company is
a. an increase in assets and liabilities.
b. a decrease in assets and liabilities.
c. no change in total assets.
d. an increase in assets and a decrease in liabilities.

Answer 1

Answer: The correct answer is "c. no change in total assets.".

Explanation: The operation involves the purchase of equipment that is a Fixed Asset, by delivering Cash that is also an Asset. The Fixed Asset is recorded in the company for its cost, that is, 1300. Therefore, the Cash (Asset) decreases by 1300 and the Equipment (Fixed Asset) increases by 1300.