Homework Answers
a) When the company purchase machinery for $19827 and paid cash $3900 at the time of the purchase, the machinery of the company will increases by $19827 and the cash of the company will decreases by $3900.
The net effect on the assets= $19827 Increase-3900 Decrease= $15927 Increase
And the remaining amount will be paid in four monthly installments by which the total liabilities of the company will increases by $15927 (19827-3900)
Increase total assets by a net amount of $15927 and increase liabilities by $15927
b) When the company will pay the first monthly installment, the assets and the liabilities of the company will be decreased as the cash and notes payable of the company will reduced.
Monthly installments= $15927/4= $3981.75
Decrease assets by $3981.75 and decrease liabilities by $3981.75.
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