Question

Kirby, incorporated borrows 16 million from its bank. It then uses this money to buy equipment. How do these transactions affect the company's accounting equation?

Answer 1

Kirby, Incorporated's accounting equation is affected by an increase in both assets and liabilities by $16 million when it borrows money to purchase equipment, with no immediate change to equity.

Step-by-step explanation:

When Kirby, Incorporated borrowed $16 million from a bank and used it to buy equipment, the transaction affected the company's accounting equation in a specific way. The accounting equation states that Assets = Liabilities + Equity. In borrowing the money, Kirby's liabilities increased by $16 million due to the new loan on the books. Simultaneously, Kirby's assets also increased by $16 million because the company now owns new equipment worth that amount. There is no immediate change to equity from this transaction. Thus, both sides of the accounting equation increase by the same amount, maintaining its balance.