Alpha Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. It buys office equipment on credit for $75,000. What would be the effects of this transaction on the accounting equation?
A) Assets increase by $75,000 and liabilities increase by $75,000.
B) Liabilities increase by $75,000 and expenses decrease by $75,000.
C) Assets increase by $75,000 and expenses decrease by $75,000.
D) Assets increase by $75,000 and expenses increase by $75,000.
E) Assets decrease by $75,000 and expenses decrease by $75,000.

Question

Quizplus · Accepted Answer

The purchase of office equipment on credit for $75,000 would increase Alpha Company's assets by $75,000 (since they now own the equipment), and it would also increase their liabilities by $75,000 (since they owe the money for the equipment). Therefore, the accounting equation would balance as follows:

Assets ($600,000 + $75,000) = $675,000 
Liabilities ($250,000 + $75,000) = $325,000 
Equity ($350,000) = $350,000

Overall, this transaction would increase Alpha Company's total assets and total liabilities by the same amount, so it would not affect their equity.

Alpha Company Has Assets of $600,000, Liabilities of $250,000, and Equity