Foster, Inc., purchased a truck by paying $5,000 and borrowing the remaining $25

Question

Foster, Inc., purchased a truck by paying $5,000 and borrowing the remaining $25,000 required to complete the transaction. Identify the correct statement(s) based on the above transaction. (Select all that apply.)


1) The company's liabilities will also increase by $20,000.
2) The company's liabilities will also decrease by $25,000.
3)Foster Inc.'s assets will decrease by a net amount of $25,000.
4) The company's liabilities will increase by $25,000.
5) Foster Inc.'s assets will increase by a net amount of $25,000.
6) Foster Inc.'s assets will decrease by a net amount of $20,000.

Explanation / Answer

6) Foster Inc.'s assets will decrease by a net amount of $20,000.

 

Since he has bought a truck, Thus the asset will increase by $5,000 and since he borrowed $25,000 hence the asset will decrease by $25,000. Thus total asset decreases by  $25,000 -  $5,000 = $20,000

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