What is the effect on total assets when a company purchases land for a cash payment of \$10?

• A. Total assets remain unchanged.
• B. Total assets increase by \$10.
• C. Total assets decrease by \$20.
• D. Total assets decrease by \$10.

Answer: (A)

Verified step by step guidance

1. Understand the concept of total assets: Total assets represent the sum of all resources owned by a company, including cash, land, equipment, and other items of value.
2. Identify the transaction: The company is purchasing land for a cash payment of \$10. This means cash (an asset) is being reduced, and land (another asset) is being increased.
3. Analyze the impact on total assets: Since one asset (cash) decreases by \$10 and another asset (land) increases by \$10, the total assets remain unchanged because the decrease in one asset is offset by the increase in another.
4. Apply the accounting equation: The accounting equation is Assets = Liabilities + Equity. In this case, there is no change to liabilities or equity, and the total assets remain constant.
5. Conclude the effect: The purchase of land for cash does not change the total assets of the company; it simply reallocates the composition of assets between cash and land.