Question

Daemon Company paid cash to purchase land. Which of the following shows how this event will affect the company's accounting equation?

Option A:
Assets (-)
Liabilities (-)
Common Stock (NA)
Retained Earnings (NA)

Option B:
Assets (-+)
Liabilities (NA)
Common Stock (NA)
Retained Earnings (NA)

Option C:
Assets (-)
Liabilities (NA)
Common Stock (+)
Retained Earnings (-)

Option D:
Assets (NA)
Liabilities (-)
Common Stock (NA)
Retained Earnings (-)

Answer 1

Option B: Assets (-+) Liabilities (NA) Common Stock (NA) Retained Earnings (NA)

Step-by-step explanation:

B: Assets (-+) Liabilities (NA) Common Stock (NA) Retained Earnings (NA).

When Daemon Company pays cash to purchase land, it will decrease its assets (cash) because cash is being used to make the purchase. This is represented by the (-) sign. At the same time, there is no change in liabilities, common stock, or retained earnings, so they are indicated as NA (not applicable).

When Daemon Company paid cash to purchase land, it exchanged one asset (cash) for another (land), which affects the accounting equation. The correct impact on the company's accounting equation is reflected in Option B: Assets (-+), Liabilities (NA), Common Stock (NA), Retained Earnings (NA). This means that while the total value of assets remains unchanged, the composition of assets does change – cash decreases but land value increases – with no change to liabilities, common stock, or retained earnings.