Question

Effect of Transactions on Accounting Equation a. A vacant lot acquired for $297,000 is sold for $573,000 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? If there is no change, select 'No change from the dropdown and then enter a "0" in the amount box. Effect Amount 1. Total Assets 2. Total Liabilities 3. Stockholders' Equity b. Assume that the seller owes $83,000 on a loan for the land. After receiving the $573,000 cash in (a), the seller pays the $83,000 owed. What is the effect of the payment on the total amount of the seller's (1) assets, (2) liabilities, and (3) stockholders' equity? If there is no change, select 'No change from the dropdown and then enter a 'o' in the amount box. Consider only the payoff of the loan, without considering the sale of the land. Effect Amount 1. Total Assets 2. Total Liabilities 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?

Answer 1

Requirement a:

		Effect	Amount
1	Total Assets	Increase	$573,000
2	Total liabilities	No change	$0
3	Stockholders' Equity	Increase	$276,000

Explanation:

i.Cash received from the sale is $573,000. So Total assets are increased by $573,000

i.Gain on sale= Sale price - Cost price

= $573,000 - $ 297,000

= $276,000

So that, Stockholder's equity was increased by $276,000 as revenue increased.

Requirement b:

		Effect	Amount
1	Total Assets	Decrease	($83,000)
2	Total liabilities	Decrease	($83,000)
3	Stockholders' Equity	No change	$0

Explanation:

Seller owe $83,000. It means seller has outstanding liability.

When seller paid, Cash decreased by $83,000 and Liability is also decreased by $83,000.

So that Total assets decreases and Total liabilities also decreases.

Answer 2