Question

A transaction caused a $200,000 increase in both assets and total liabilities. This transaction could have been:

Select one:

A. Purchase of office equipment for $240,000, paying $40,000 cash and issuing a note payable for the balance

B. Purchase for office equipment for $200,000 cash

C. Investment of $200,000 cash in the business by the owner

D. Repayment of a $200,000 bank loan

Answer 1

Correct option is A - Increase in both the assets and liabilities is driven by purchase of office equipment for $240,000, paying $40,000 cash and issuing a note payable for the balance. The journal entry would be as follows -

office equipment should be debited with $240,000

cash account should be credited with $40,000

notes payable should be credited with $200,000

Option B - purchase of office equipment for cash is not correct due to

office equipment should be debited with $200,000 which increases the asset balance

cash account should be credited with $200,000 which decreases the assets

Option C - investment of $200,000 cash in business by the owner is not correct due to

cash account should be debited with $200,000 which increases the asset balance

owner's equity account should be credit with $200,000 which increase the owner's balance

Option D - repayment of a $200,000 bank loan is not correct due to

bank loan account should be debited with $200,000 which decreases the liability balance

cash account should be credit with $200,000 which decreases the asset balance