Shareholders invest $100 000 in a business.Inventory of $80 000 is bought on account and damaged inventory that was purchased on credit for $10 000 was returned.Equipment costing $200 000 was purchased,which was financed by a loan from the seller,repayable in 5 years.The business paid $40 000 to accounts payable.Total assets increased by:
A) $100 000
B) $170 000
C) $330 000
D) none of the above.

Question

Quizplus · Accepted Answer

- Shareholders invest $100 000, so assets increase by $100 000.
- Inventory of $80 000 is bought on account, so assets increase by $80 000.
- Damaged inventory worth $10 000 was returned, so liabilities decrease by $10 000 and assets also decrease by $10 000 (accounts payable paid).
- Equipment costing $200 000 was purchased, so assets increase by $200 000.
- The loan for the equipment was not paid with cash, so liabilities also increase by $200 000.
- Accounts payable of $40 000 was paid, so liabilities decrease by $40 000.
- Total assets increased by $100 000 + $80 000 + $200 000 = $380 000
- Total liabilities increased by $200 000 - $10 000 = $190 000
- Therefore, total equity increased by $190 000 and total assets increased by $380 000. 
- Thus, the answer is $380 000 - $190 000 = $190 000 + $190 000 = $330 000.

Shareholders Invest $100 000 in a Business