Accounting tricky question by evil teacher?

Question

When a company buys equipment for $150,000 and pays for one third in cash and the other two thirds is financed by a note payable, the following are the effects on the equation
(2 points)




a.cash decreases by $50,000.
b.equipment increases by $100,000.
c.liabilities increase by $150,000.
d.total assets increase by $200,000.
e.All of the above effects occur on the equation.

Its tricky because yes cash is reduced by 50 ,000
but also we get 150000 worth of equipment.

Answer 1

Work through the journals...

Dr, PP & E - 150k
Cr, Cash - 50k
Cr, Notes Payable - 100k

A is correct.

B wrong because equipment increases by 150k
C wrong because liabilities increase by 100k
D wrong because assets increase by net of 150 minus 50 = 100k
E wrong recall above - obvious

Answer 2

Dr Purchases - equipment 150,000 (Asset increase)
Cr Loan note (Non Current Liability) 100,000 at the end of year x when all the liabilities are taken up (Liability increase)
Cr Cash and Bank 50,000 (Asset reduction)

a. Cr Cash and bank 50,000
b. Dr Purchases - equipment 100,000 vs above of 150K
c. Cr Amounts due to .... 150,000 vs above 100K
d. Dr Equipment 200,000 vs above of 150K
e. ??? The examiner is being kind here.

Option a the only correct one per IFRS, in this case mindful that Asset acquired equals economic benefit forgone in the form of a liability of 100,000 awaiting settlement, of which 50,000 has been paid up.

Double entry per IFRS
Dr Purchases -equipment 150,000
Cr Cash and Bank 50,000
Cr Deferred Settlement x% loan note XXX
(revised yearly on the interest rate , with the accumulated balance yr 1:xx, yr 2:xxx, yr 3:xxxx, wherein interest is credited to Deferred Settlement or loan note accordingly; and
interest elements are required to be disclosed as separate to the principal amount owing in the F/S, in the notes to accounts.)

XXX being 100,000 in the year payment becomes due;
in the current year and years leading up to year x in which 100,000 becomes due and payable,
100,000 should be discounted back to the present day as $1 in the future is not the same as $1 now, given inflation, etc., calculated using cost of capital or cost of borrowings, i.e. the interest charges compounded yearly.

Answer 3

a. Equipment loses value going out the factory doors, and is no longer valued at $150,000.

Answer 4

a. only. All the numbers are wrong on the rest.

Answer 5

Where is the trick?

The answer is A

Answer 6

a.