Zion 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 expenses increase by $75,000.
B) Assets increase by $75,000 and expenses decrease by $75,000.
C) Liabilities increase by $75,000 and expenses decrease by $75,000.
D) Assets decrease by $75,000 and expenses decrease by $75,000.
E) Assets increase by $75,000 and liabilities increase by $75,000.

Question

Quizplus · Accepted Answer

The purchase of office equipment on credit for $75,000 would increase the assets by the same amount, as the company now has the equipment. However, since the purchase was on credit, it would also increase the liabilities by $75,000, as the company now owes that amount to its creditors. There is no effect on expenses, so options A, B, and D can be eliminated. Option C is incorrect because liabilities would increase, not decrease. Therefore, the correct answer is E.

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