Navy Inc.buys land for $500,000 cash in the month of March.In March, it also paid wages of $100,000.Which of the following statements is true with regards to the above transactions?

Question

Navy Inc.buys land for $500,000 cash in the month of March.In March, it also paid wages of $100,000.Which of the following statements is true with regards to the above transactions?​

Quizplus · Accepted Answer

The purchase of land for $500,000 cash is a decrease in liquidity (cash) of $500,000. 
The payment of wages of $100,000 is also a decrease in liquidity (cash) of $100,000.

Therefore, total decrease in liquidity = $500,000 + $100,000 = $600,000 (Option B is incorrect)

The transactions do not have an impact on profitability (revenue or expenses). Therefore, profitability remains unchanged. (Option A and C are incorrect)

Hence, the correct answer is D.

Navy IncBuys Land for $500,000 Cash in the Month of March