Cost of the asset$100,000
Life of the asset 5 years
Depreciation rate20%
Capital cost allowance rate 50%
Residual value of the asset nil
Income tax rate 50%
-An entrepreneur buys office furniture to be paid for in 30 days. What is the effect on the financial statements?
A) Capital assets increase and long-term debt increases.
B) Capital assets increase and current liabilities increase.
C) Current assets increase and cash decreases.
D) Current assets increase and current liabilities increase.

Question

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur buys office furniture to be paid for in 30 days. What is the effect on the financial statements?
A) Capital assets increase and long-term debt increases.
B) Capital assets increase and current liabilities increase.
C) Current assets increase and cash decreases.
D) Current assets increase and current liabilities increase.

Quizplus · Accepted Answer

When an entrepreneur buys office furniture on credit to be paid in 30 days, it increases capital assets (the office furniture itself) and increases current liabilities (the obligation to pay for the furniture in 30 days).

Cost of the Asset$100,000