Question

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?

Answer 1

Answer:

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.