Answer:
The sale implies:
Reduction in asset-land by $65000
An increase in asset cash by $85000
An increase share capital by $20,000
The payment of mortgage means:
decrease in liability by $40,000
decrease in asset by $40,000
Explanation:
First of all, the sale of the land means a decrease in a non-current asset, land by $65,000 as well as an increase in a current asset cash by $85,000 while balancing amount of $20,000, gain on sale of land would increase retained earnings and ultimately share capital equity.
The payoff of loan of $40,000 reduces long-term liability mortgage by $40,000 and also reduces current asset , cash by the same amount, in other words asset and liability reduce by $40,000 simultaneously.
