Land is purchased by a business for 100,000 dollars.The company pays for the lan

Question

Land is purchased by a business for 100,000 dollars.The company pays for the land by a cash payment of 20,000 dollars and promised to pay the remaining amount at a later period.What is net effect of this transaction on the business's accounting equation ?

a)Assets increase by 100,000 dollars;liabilities decrease by 20,000 dollars

b)Assets increase by 80,000 dollars;liabilities increase by 80,000 dollars

c)Assets increase by 80,000 dollar;equity increases by 80,000 dollars

d)Assets increase by 100,000 dollars;liabilities decrease by 80,000 dollars

Explanation / Answer

Land is purchased for 100000 and 20000 dollar pay for cash so net effect is 80000 increase in assets and 80000 increase in liabilities.

so answer is b)Assets increase by 80,000 dollars;liabilities increase by 80,000 dollars

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