Hansen Enterprises sold the land for cash at an amount equal to its cost. This transaction...

Hansen Enterprises sold the land for cash at an amount equal to its cost. This transaction increased which accounts?

a) Liabilities

b) Retained Earnings

c) Common Stock

d) Assets

The answer is d. But doesn't it stay constant? I think as cash is increased, the land value is decreased. Isn't it?

Can you explain why it is d?

Expert Solution

Answer)

The correct option in the given question is (d) Assets

Justifications:

(a) Liabilities: Since none of the accounts involved (i.e. Cash Account or Land account) in the transaction are Liabilities. This option is incorrect.

(b) Retained Earnings: Since the land is sold at a value which is equal to its cost, no profit or gain has been realized and accordingly retained earnings account will not be increased. Thus this option is incorrect.

(c) Common Stock: Since common stock is not issued, this account will not be affected. Thus this account will not be affected.

(d) Assets: The transaction of sale of land for cash will result in increase in CASH account which is an Asset account. Thus, this option is CORRECT.

Note: The question required to select the appropriate category of account (s) which are increased as a result of transaction specified therein. Since with the sale of Land Cash account increased, the correct option will be Assets.

The question did not ask for the net impact on the accounts, it just required to name the account out of the given category of accounts which will increase.

ekkarill92 answered 1 year ago

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