Question

jennifer has the transactions below, what is the combined impact on her net worth when considering all of the transactions? She purchases $5,000 worth of a mutual fund with cash from her savings account. She spends $6,000 on a two-week vacation to Italy using funds in her money market account. She purchases $10,000 worth of furniture for her house and uses her credit card to finance the purchase.

Answer 1

Answer:

1. No effect

2. Outflow of cash

3. No effect

So, by $6,000, the net worth would decrease.

Explanation:

1. In the first situation, she purchases $5,000 worth of a mutual fund with cash which means it affects both the asset and the liability. So, the net impact would be zero.  

2. In the second situation, she spends $6,000 on a two-week vacation which means it withdrew money that represents an outflow of cash.  

3. In the third situation, again it affects both the asset and the liability. So, the net impact would be zero.  

So, the net worth would decrease by $6,000