Understanding Equipment Costing in Business Transactions
What happens when a business acquires equipment costing $10,000 by making a $2,000 down payment and issuing a note for the balance?
Select one: a. equipment to be debited for $10,000. b. notes payable to be debited for $8,000. c. cash to be credited for $8,000. d. equipment to be credited for $8,000.
Answer:
The correct answer is: a. Equipment to be debited for $10,000.
Based on the information provided, it appears that the business acquired equipment costing $10,000 by making a $2,000 down payment and issuing a note for the remaining balance. This transaction involves several key accounts:
1. Equipment: The equipment account will be debited for the full cost of $10,000. This entry reflects the increase in the value of the equipment owned by the business.
2. Notes Payable: The notes payable account will be credited for the balance amount of $8,000. This entry represents the liability the business owes for the remaining balance of the equipment cost.
3. Cash: The cash account will be debited for the down payment amount of $2,000. This entry reflects the decrease in the cash balance of the business due to the payment made.
Therefore, the correct accounting treatment for this transaction is to debit Equipment for $10,000, credit Notes Payable for $8,000, and debit Cash for $2,000.