What are the effects on the accounting equation from the purchase of a short-term investment?
A)Assets and stockholders' equity increase.
B)No effects; assets increase and decrease by the same amount.
C)Assets and liabilities decrease.
D)Stockholders' equity increases and liabilities decrease.

Question

Quizplus · Accepted Answer

When a company purchases a short-term investment, it uses cash (an asset) to buy another asset (the investment). This means the total assets of the company remain the same, but the composition of the assets changes. There is no effect on liabilities or stockholders' equity from this transaction alone.

What Are the Effects on the Accounting Equation from the Purchase