Answer:
Explanation:
Liken enterprises
Accounting equation:
Asset minus Liability = Capital
Jan 1 2013
Land (Asset) was purchased
$20,000 + 0 = $20,000
A.
In 2014
Land (Asset) was sold for cash at a profit of $2,500
*Land (Asset) is now zero
*Cash (Asset) is now $22,500
*Profit from the sale of Land (addition to capital also called retained earnings) is added to capital
Asset minus Liability = Capital
($20,000 - $20,000 + $22,500) minus 0 = $20,000 + $2,500
$22,500 + 0 = $22,500
B.
The statement of cashflow only recognizes cash movement in transactions and not accruals.
Therefore the sale of Land will be recorded as $22,500 in the cashflow statement
C.
Land being an Asset, all of its transactions at the point of purchase and disposal would have been treated within the balance sheet.
However where a profit or loss is arrived at in the disposal of the asset, it is then recognized in the income statement.
In this case $2,500 will be recognized in the income statement as profit on disposal of Land
2.
If land was sold for $18,500 (this is at a loss of $1,500)
A.
*Land (Asset) is now zero
*Cash (Asset) is now $18,500
*Loss from the sale of Land (reduction in capital being net operating loss) is deducted from existing capital balance
Asset minus Liability = Capital
($20,000 - $20,000 + $18,500) minus 0 = $20,000 - $1,500
$18,500 + 0 = $18,500
B.
In this case $1,500 will be recognized in the income statement as Loss on disposal of Land
C.
$18,500 will be recorded in the cashflow statement recognising the cash received from the sale of land at a loss
