Question

A. A vacant lot acquired for $115,000 is sold for $298,000 in cash. What is the effect of the sale on the total amount of the seller’s (1) assets, (2) liabilities, and (3) owner’s equity?
b. 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) owner’s equity?
c. Is it true that a transaction always affects at least two elements (Assets, Liabilities, or Owner’s Equity) of the accounting equation? Explain.

Answer 1

Explanation:

since it's given that

Acquiring value of the vacant lot =$115,000

Sale value of the vacant lot in cash=$298,000

Since the sale value is more than the Acquiring value which reflects the increment in the asset for $183,000 due to which the profit is also increased for $183,000 i.e. retained earnings

Now the effect is shown below

1. Assets = increase = $183,000

2. Liabilities = no change = $0

3. Stockholder Equity = Increased= $183,000