Updating the accounting equation for purchases with trade discount Steps: - Start with original equation: Assets $48,000 = Liabilities$8,000 + Capital $40,000 (balances as$8,000 + $40,000 =$48,000; bank $8,000 included in assets). - Transaction 1: Purchase goods$4,000 by cheque increases inventory $4,000 and decreases bank$4,000; net assets unchanged at $48,000; liabilities and capital unchanged. - Transaction 2: Purchase on credit at list$4,000 less 25% trade discount ($1,000 discount) records net cost$3,000; increases inventory $3,000 (assets to$51,000) and increases liabilities $3,000 (to$11,000); capital unchanged at $40,000. - Verify:$51,000 = $11,000 +$40,000. Why C is correct: - Trade discount reduces recorded purchase cost to net amount per accounting rules, increasing assets and liabilities by $3,000 each from original balanced equation. Why the others are wrong: - A: Assets$9,000 ignores total assets and misapplies transactions; equation doesn't balance ($10,000 +$39,000 = $49,000). - B: Assets$50,000 understates asset increase (should be +$3,000, not +$2,000); equation doesn't balance ($11,000 +$40,000 = $51,000). - D: Identical to C, but listed separately …