Answer:
Finance charge = $2,720
Transaction a: This increases assets by $30,000 and also the liabilities by $30,000.
Transaction b: This increases assets by $64,000, increases liabilities by $66,720, but reduces Stockholder's Equity by $2,720.
Explanation:
Note: See the attached excel file for the accounting equation.
In the attached excel file, the finance charge of $2,720 is calculated as follows:
Finance charge = Amount borrowed * Interest rate * (Number of months the promissory will due / Number of months in a year) = $64,000 * 8.50% * (6 / 12) = $2,720
The effect of each transaction on the accounting equation are discussed below:
Transaction a: This increases assets by $30,000 and also the liabilities by $30,000.
Transaction b: This increases assets by $64,000, increases liabilities by $66,720, but reduces Stockholder's Equity by $2,720.
