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In September, you have your car repaired and it costs you $600
In September, you have your car repaired and it costs you $600. The repair shop agreed that you can pay them in three equal installments starting in October.
Which of the following is true?
a. Your net worth will decrease in October, November and December in equal amounts of $200 each month.
b. Your net worth will decrease in September by $600.
c. Your net worth will not decrease in September because you have not yet paid for the repair.
d. Your net worth will increase in September by $200 because the value of your car increased.
Expert Solution
- On the day you have your car serviced, you have incurred an expense.
- This transaction will increase your liabilities on that day, and decrease your net worth (or equity).
- In the moths you make the payments, your assets (cash) will decrease and your liabilities will decrease as well, so this will not affect your net worth.
- If the service really increased the value of your car, this should be considered separately, but usually services do not increase asset values.
The correct option is b.
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