Frank Company experienced an event that affected its financial statements as indicated below: $$\begin{array} { | c | c | c | c | c | c | c | c | c | c | }
\hline \text { Assets } & = & \text { Liabilities } & + & \text { Equity } & \text { Revenue } & - & \text { Expense } & = & \text { Net income } \
\hline 5,000 & = & \mathrm { n } / \mathrm { a } & + & 5,000 & 5,000 & - & \mathrm { n } / \mathrm { a } & = & 5,000 \
\hline
\end{array}$$ Which of the following transactions caused the indicated effects?
A) Completed units were sold.
B) Units were completed and moved to finished goods.
C) The cost of units sold was recorded.
D) None of these answers are correct.

Question

Frank Company experienced an event that affected its financial statements as indicated below: $$\begin{array} { | c | c | c | c | c | c | c | c | c | c | } 
\hline \text { Assets } & = & \text { Liabilities } & + & \text { Equity } & \text { Revenue } & - & \text { Expense } & = & \text { Net income } \
\hline 5,000 & = & \mathrm { n } / \mathrm { a } & + & 5,000 & 5,000 & - & \mathrm { n } / \mathrm { a } & = & 5,000 \
\hline
\end{array}$$ Which of the following transactions caused the indicated effects?
A) Completed units were sold.
B) Units were completed and moved to finished goods.
C) The cost of units sold was recorded.
D) None of these answers are correct.

Quizplus · Accepted Answer

The transaction that caused the indicated effects is the sale of completed units. This is because revenue increased by $5,000, which directly increased equity by the same amount (assuming no expenses related to the sale were recorded), leading to a net income of $5,000. The assets also increased by $5,000, likely due to the receipt of cash or accounts receivable from the sale. This scenario does not directly involve liabilities, hence "n/a" is mentioned under liabilities and expenses.

Frank Company Experienced an Event That Affected Its Financial Statements