Question

Mr. Bhandari purchased a car for 50,000, making a down payment of 10,000 and signing a *40,000 bill payable due in 60 days. As a result of this transaction:

Q: Mr. Bhandari purchased a car for 50,000, making a down payment of 10,000 and signing a *40,000 bill

Thistransactioninvolvesthepurchaseofacarfor50000Thedownpaymentof10000reducesthecashassetby10000butitincreasesthecarassetby50000Thebillpayableof40000representsaliabilityasitsadebtthatneedstobepaidSotheneteffectisanincreaseinassetscarby40000andacorrespondingincreaseinliabilitiesbillpayableby40000

A Total assets increased by 50,000 Correct Answer Incorrect Answer

B Total liabilities increased by 40,000 Correct Answer Incorrect Answer

C Total assets increased by 40,000 Correct Answer Incorrect Answer

D Total assets increased by 40,000 with a corresponding increase in liabilities by 40,000 Correct Answer Incorrect Answer

E Total liabilities decreased by 40,000 Correct Answer Incorrect Answer

Solution

This transaction involves the purchase of a car for 50,000. The down payment of 10,000 reduces the cash (asset) by 10,000, but it increases the car (asset) by 50,000. The bill payable of 40,000 represents a liability, as it's a debt that needs to be paid. So, the net effect is an increase in assets (car) by 40,000 and a corresponding increase in liabilities (bill payable) by 40,000.

Practice Next

Question

Mr. Bhandari purchased a car for 50,000, making a down payment of 10,000 and signing a *40,000 bill payable due in 60 days. As a result of this transaction:

Solution

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