Question

Benito Mendez invested $5,000 in cash in Mendez Appraisals. What is the effect of this transaction on Mendez Appraisals' accounting equation?

a) Assets increase by $5,000, Liabilities increase by $5,000
b) Assets increase by $5,000, Owner's Equity increases by $5,000
c) Liabilities increase by $5,000, Owner's Equity increases by $5,000
d) Liabilities decrease by $5,000, Owner's Equity decreases by $5,000

Answer 1

When Benito Mendez invests $5,000 in cash in Mendez Appraisals, the effect on the company's accounting equation is that Assets increase by $5,000 and Owner's Equity also increases by $5,000.

Step-by-step explanation:

The effect of Benito Mendez investing $5,000 in cash in Mendez Appraisals is that the Assets increase by $5,000, Owner's Equity increases by $5,000. This transaction has no effect on Liabilities because Benito Mendez is investing his own money, not borrowing it. Therefore, option b) Assets increase by $5,000, Owner's Equity increases by $5,000 is the correct answer choice.