Question

Assume that the seller owes $80,000 on a loan for the land. After receiving the $298,000 cash in (a), the seller pays the $80,000 owed. What is the effect of the payment on the total amount of the seller's (1) assets, (2) liabilities, and (3) stockholders' equity? If there is no change, select 'No change' from the dropdown and then enter a "0" in the amount box. Consider only the payoff of the loan, without considering the sale of the land.

Answer 1

Answer:

1.   - $   80,000

2.  -  $  80,000

3.  -   $     0      -   No effect

Explanation:

1. Assets  

 - 80,000  ( pay loan ) -  decrease

2. Liabilities

 - 80,000 ( loan from + 80,000 to  0 ) - decrease

3. Stockholders Equity: no change, as there was not result ( profit/loss ) nor    shareholder contribution/withdrawal