Question

Jeanie Company purchases $600 of equipment from Mundelein Company for cash. The effect on the components...

Jeanie Company purchases $600 of equipment from Mundelein Company for cash. The effect on the components of the accounting equation of Jeanie Company is

a decrease in assets and liabilities.

no change in total assets.

an increase in assets and a decrease in liabilities.

an increase in assets and liabilities.
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Answer #1

Answer:

Purchase of equipment for cash results in an increase in intangible fixed assets & a decrease in current assets. The purchase of equipment for cash does not result in changes in liabilities as when equipment purchased it results in an increase in intangible fixed assets & the same time cash & cash equivalents get reduced.

Jeanie Company purchases $600 of equipment from Mundelein Company for cash. The effect on the components results in an increase in equipment (assets) for $600 & a decrease in cash (current assets) for $600.

Therefore, it does not result in changes in liabilities & hence Option (b) "no changes in total assets" is the correct answer.

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