Land is purchased with a $20,000 down payment and the execution of an $80,000 promissory note. How does this purchase affect the accounting equation?
A) Assets increase $80, 000; liabilities decrease $20,000.
B) Assets increase $20, 000; liabilities decrease $80,000.
C) Assets increase $80, 000; owner's equity increases $80,000.
D) Assets increase $80, 000; liabilities increase $80,000.

Question

Quizplus · Accepted Answer

The purchase increases assets (land) by the full purchase price of $100,000, but since $20,000 is paid as a down payment, the net increase in assets is $80,000. The $80,000 promissory note increases liabilities by $80,000, reflecting the amount borrowed to complete the purchase.

Land Is Purchased with a $20,000 Down Payment and the Execution