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

Question

Business

Lexie Mcknight

26 July, 03:10

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

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Answers (1)

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Amanda Bowen · Answer 1

assets + 80,000

liaiblities + 80,000

equity: no effect

Explanation:

the land enter the accounting at cost, which is 100,000

cash, which is an assets will decrease by 20,000

the net effect on assets is 80,000

(100,000 from lñand - 20,000 ecrease in cash)

the amount financed through the promissory note will increase liaiblities for 80,000

equity will not be affected.