1) Simpson Auto Body Repair purchased $20,000 of Machinery. The company paid $8,

Question

1) Simpson Auto Body Repair purchased $20,000 of Machinery. The company paid $8,000 in cash at the time of the purchase and signed a promissory note for the remainder to be paid in four monthly installments. How will this transaction affect the accounting equation?

A. Increase Assets (Machinery $20,000) and decrease Liabilities (Accounts Payable $20,000)

B. Increase Total Assets by a net amount of $12,000 (increase Machinery $20,000 and decrease Cash $8,000) and increase Liabilities (Notes Payable $12,000)

C. Increase Total Assets by a net amount of $20,000 (increase Machinery $12,000 and increase Cash $8,000) and decrease Liabilities (Accounts Payable $20,000)

D. Increase Assets (Machinery $12,000) and increase Liabilities (Accounts Payable $12,000)

Explanation / Answer

B. Increase Total Assets by a net amount of $12,000 (increase Machinery $20,000 and decrease Cash $8,000) and increase Liabilities (Notes Payable $12,000)

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