Payment is made for land purchased earlier on credit.For this transaction,identify the effect on the accounting equation.
A)Assets increase and liabilities increase.
B)Assets increase and stockholders' equity increases.
C)Liabilities increase and stockholders' equity decreases.
D)Liabilities decrease and assets decrease.

Question

Quizplus · Accepted Answer

When the payment is made for land purchased earlier on credit, it reduces the liability (accounts payable) and also reduces the cash (asset) balance. Hence, both liabilities and assets will decrease. Therefore, option D is the correct answer.

Payment Is Made for Land Purchased Earlier on Credit