Question

On January 1, Year 1, Prairie Enterprises purchased a parcel of land for $13,100 cash. At the time of purchase, the company planned to use the land for a warehouse site. In Year 3, Prairie Enterprises changed its plans and sold the land.

Required
a. Assume that the land was sold for $14,541 in Year 3.

1. (1) Show the effect of the sale on the accounting equation.
2. (2) What amount would Prairie report on the Year 3 income statement related to the sale of the land?
3. (3) What amount would Prairie report on the Year 3 statement of cash flows related to the sale of the land?

b. Assume that the land was sold for $12,314 in Year 3.

1. (1) Show the effect of the sale on the accounting equation.
2. (2) What amount would Prairie report on the Year 3 income statement related to the sale of the land?
3. (3) What amount would Prairie report on the Year 3 statement of cash flows related to the sale of the land?

Assume that the land was sold for $14,541 in Year 3.
Show the effect of the sale on the accounting equation. (Enter any decreases to account balances with a minus sign.)

	PRAIRIE ENTERPRISES Year 3 Accounting Equation Assets = Stockholders’ Equity Cash Land = Common Stock + Retained Earnings = +

Assume that the land was sold for $14,541 in Year 3.
What amount would Prairie report on the Year 3 income statement related to the sale of the land?
What amount would Prairie report on the Year 3 statement of cash flows related to the sale of the land?

	a-2. of a-3.

Assume that the land was sold for $12,314 in Year 3.
Show the effect of the sale on the accounting equation. (Enter any decreases to account balances with a minus sign.)

	PRAIRIE ENTERPRISES Year 3 Accounting Equation Assets = Stockholders’ Equity Cash Land = Common Stock + Retained Earnings = +

Assume that the land was sold for $12,314 in Year 3.

What amount would Prairie report on the Year 3 income statement related to the sale of the land?
What amount would Prairie report on the Year 3 statement of cash flows related to the sale of the land?

	b-2. of b-3.

Answer 1

SOLUTION

A1.

Assets	Assets		Stockholders Equity	Stockholders Equity
Cash	Land	=	Common stock	Retained earnings
14,541	(13,100)	=	0	1,441

2. Income statement- Gain on sale of Land = $1,441

3. Cash flows- Cash inflow from investing activities = $14,541

B1.

Assets	Assets		Stockholders Equity	Stockholders Equity
Cash	Land	=	Common stock	Retained earnings
12,314	(13,100)	=	0	(786)

2. Income statement- Loss on sale of Land = $(786)

3. Cash flows- Cash inflow from investing activities = $12,314