Answer:
Assets and equities both increase by $52,000. No change in liabilities.
Explanation:
The accounting equation gives the relationship between all the items that make up the balance sheet. These are the assets, liabilities and owner's equity.
assets = equity + liabilities
If the parcel of land that was originally purchased for $85,000 and sold for $137,000, the seller would recognize a
Gain on disposal = $137,000 - $85,000
= $52,000
This gain on disposal is an additional income to the seller.
The effect on the accounting equation is that there is a net increase in asset of $52,000 as fixed asset reduces by $85,000 but another asset in form of cash or accounts receivable amounting to $137,000 is recognized. No change happens to the sellers liability.
However, the seller's equity increases as the gain on disposal is an income which would be posted at the end of the year into retained earnings.
In summary, assets and equities both increase by $52,000.
