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

Answer 1

Answer:

Amount owed on a loan for the land = $80,000

Payment in cash for the loan = $80,000

(1) Assets decreases by $80,000 as cash is used for the payment of loan.

(2) Liabilities also decreases by the $80,000 i.e decrease in liability as the loan is settled down.

(3) Stockholders' equity: There is no change occurred in the seller's stockholders equity.

Answer 2

Answer:

Assets                =   Capital  +  Liabilities

Cash (-80000)                           Loan (-80000)  [Loan paid by cash]  

Explanation:

This treatment can be shown as effect on 'Accounting Equation'

Assets = Capital + Liabilities

Previous Details : Loan added in Liability = 80000

Cash Received : Cash Added in Assets = 298000 ; and  Asset on A/c of which cash is received (Eg: Debtor/ Accrued Income) minus from Assets = 298000

Cash Received & Loan Paid :  Cash minus from Assets = 80000 ; and

Loan minus from Liability = 80000