What Are the Effects on the Accounting Equation from the Purchase

question 107

Multiple Choice

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.

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Definitions:

Personal/Rental

Refers to properties or items that are used both for personal purposes and rented out for income, requiring specific tax treatment for the income and expenses.

Rental Activity

Engaging in leasing out property as a business or investment, generating income from tenants paying rent.

Flow-Through Entity

A legal business entity where income flows through to investors or owners; the entity itself is not taxed but the individuals receiving the income are.

C Corporation

A legal structure for a corporation where the owners, or shareholders, are taxed separately from the entity.