Rosewood Corporation Purchased Land for $100,000 by Making a Cash

question 191

Multiple Choice

Rosewood Corporation purchased land for $100,000 by making a cash payment of $38,000 and promising to pay the remaining amount in a later accounting period. What is the net effect of this transaction on Rosewood's accounting equation?

• A) Assets increase by $100,000 and liabilities decrease by $38,000.
• B) Assets increase by $100,000 and liabilities decrease by $62,000.
• C) Assets and equity increase by $62,000.
• D) Assets and liabilities increase by $62,000.

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Definitions:

Compound Interest Factors

Mathematical factors used to calculate the future value of an investment or loan, considering the effect of compounding interest over time.

Future Value

The estimated amount of money an investment will grow to over a specified period of time, based on a projected rate of interest or growth rate.

Annuity

An investment vehicle offering a consistent series of disbursements to a person, commonly utilized as a revenue source for those in retirement.

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, used in discounted cash flow analysis.