Question

If a parcel of land is assessed for tax purposes at $215,000, is offered for sale at $225,000, was originally purchased for $45,000, is recognized by its purchasers as easily being worth $240,000, and is sold for $414,000. At the time of the sale, assume that the seller owed $80,000 to TrustOne Bank on the land. Immediately after the sale, the seller paid off the loan to TrustOne Bank. What is the effect of the sale of the land and the payoff of the loan on the accounting equation?
Assets increases OR   decreases by ____________

Liabilities increases OR    decreases by ______________

Owner's equity (circle) increases OR    decreases by ______________

Answer 1

Sr No.	Particular	Amount	Effects on Accounting Equation
			Assets	Liabilities	Owner's Equity
A	Sale Value	414,000	414,000	0	0
B	Original Purchased Cost	45,000	-45,000	0	0
C	Profit on Sale (A-B)	369,000	0	0	369,000
D	Repayment of Loan	80,000	-80,000	-80,000	0
Total			289,000	-80,000	369,000
Therefore, Transactions will affect the Accounting Equation as follow:
Assets increases by		289,000
Liabilities decreases by		80,000
Owner's Equity increases by		369,000