Question

In: Finance

a. A vacant lot acquired for $115,000 is sold for $298,000 in cash. What is the effect of the

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) stockholders’ 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) stockholders’ equity?

c. Is it true that a transaction always affects at least two elements (Assets, Liabilities, or Stockholders’ Equity) of the accounting equation? Explain.

Solutions

Expert Solution

a.

(1) Total assets increased $183,000 ($298,000 – $115,000).

(2) No change in liabilities.

(3) Stockholders’ equity increased $183,000.

 

b.

(1) Total assets decreased $80,000.

(2) Total liabilities decreased $80,000.

(3) No change in stockholders’ equity.

 

c.

No, it is false that a transaction always affects at least two elements (Assets, Liabilities, or Stockholders’ Equity) of the accounting equation. Some transactions affect only one element of the accounting equation. For example, purchasing supplies for cash only affects assets.

Junaid answered 8 months ago
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