Using the table below, which transaction could explain an increase in Expenses and decrease in Assets [table]
Transaction | Assets Cash Property Houses Hotels | Expenses Rental Tax Interest Utility Other | Liabilities Bank Loans | Owner’s Equity Capital | Revenue/Income “Pass Go” Rental Other
[/table]

Question

BlackTom AI · Accepted Answer

To tackle this question, I’ll evaluate what happens to Expenses and Assets in each transaction, using the idea that an increase in Expenses typically reduces Net Income and, in many cases, reduces Assets when paid in cash.
Option a: Payment of Rental Expense. Here, the company incurs a Rental Expense, which increases Expenses. If the payment is in cash, Assets (specifically Cash) decrease. This combination exactly fits an increase in Expenses and a decrease in Assets.
Option b: Payment of Bank Loan. This transaction reduces Assets (cash) if you’re paying down a loan and also reduces Liabilities (bank loan principal) rather than creating or increasing Expenses. Since there is no increase in Expenses in this case (it’s a balance-sheet transfer between cash and loan liability, not an expense recognition), this option does not explain an increase in Expenses alongside a decrease in Assets.
Option c: Receipt of Rental Revenue/Income. Receiving rental revenue would increase Assets (cash or accounts receivable) and increase Revenue, not Expenses. There is no corresponding increase in Expenses here; thus this does not match the described scenario of rising Expenses with dropping Assets.
Option d: None of the above. Since option a aligns with an increase in Expenses and a decrease in Assets, this statement would be incorrect if the premise matches option a. Since the prompt asks which transaction could explain the specified pattern, denying all options would be inconsistent with the identified fit in option a.

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