TransAm Mail Service purchased equipment for $2,500. TransAm paid $400 in cash and signed a note for the balance. TransAm debited the Equipment account, credited Cash and
A) nothing further must be done.
B) debited the retained earnings account for $2,100.
C) credited another asset account for $400.
D) credited a liability account for $2,100.

Question

Quizplus · Accepted Answer

TransAm paid $400 in cash and signed a note for the balance, therefore creating a liability. The Equipment account is debited to record the purchase of the equipment, and Cash is credited for the amount paid in cash. However, the balance of $2,100 must be credited to a liability account to record the note payable. Therefore, the correct choice is to credit a liability account for $2,100, as stated in option D.

TransAm Mail Service Purchased Equipment for $2,500