If a company purchases equipment costing $4,000 on credit, the effect on the accounting equation would be:

Multiple Choice

• Assets increase $4,000 and liabilities decrease $4,000.

• Assets increase $4,000 and liabilities increase $4,000.

• Equity decreases $4,000 and liabilities increase $4,000.

• Equity increases $4,000 and liabilities decrease $4,000.

• One asset increases $4,000 and another asset decreases $4,000.