At the start of Year 1, Apple finances the purchase of $100 worth of factory equipment entirely with debt. Which statements change occur?

• A. Income Statement: No changes. Cash Flow from Investing: -$100. Cash Flow from Financing: +$100. Net change in cash: $0. Balance Sheet: PP&E +$100; Debt +$100; Assets +$100; Liabilities +$100; Equity unchanged.
• B. Income Statement: Revenue increases by $100. Cash Flow from Investing: -$50. Cash Flow from Financing: +$50. Net change in cash: 0. Balance Sheet: PP&E +$100; Debt +$100.
• C. Income Statement: No changes. Cash Flow from Investing: -$100. Cash Flow from Financing: 0. Net change in cash: -$100. Balance Sheet: PP&E +$100; Cash -$100.
• D. Income Statement: Net income increases by $100. Cash Flow from Investing: -$100. Cash Flow from Financing: +$100. Net change in cash: 0. Balance Sheet: PP&E +$100; Debt +$100.

Answer: (A)

When you acquire a long‑term asset using debt, you’re exchanging one form of financing for another while the asset itself increases. There’s no revenue or expense recorded at the moment of purchase, so the income statement stays unchanged. The cash flow statement, however, shows an investing outflow of the asset’s cost and a financing inflow from the debt you issued, which cancel each other, giving a net cash flow of zero. On the balance sheet, the asset base grows by the asset’s cost (PP&E +$100) and liabilities grow by the same amount (Debt +$100), while equity remains unchanged. This combination explains why the net effect is zero cash flow, with assets up by $100 and liabilities up by $100, and no change to equity.