If a company borrows money to purchase equipment:
A) one asset increases and another asset decreases.
B) an asset increases and a liability increases.
C) an asset decreases and a liability decreases.
D) an asset increases and shareholders' equity increases.

Question

Quizplus · Accepted Answer

When a company borrows money to purchase equipment, the company's assets increase (in the form of the newly acquired equipment) and a liability also increases (in the form of the amount borrowed). Therefore, the correct answer is B - an asset increases and a liability increases.

If a Company Borrows Money to Purchase Equipment