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Effect of transactions on accounting equation 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.

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 1, Problem 10E
Textbook Problem
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Effect of transactions on accounting equation

  1. 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?
  2. 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?
  3. C. Is it true that a transaction always affects at least two elements (Assets, Liabilities, or Stockholders’ Equity) of the accounting equation? Explain.

1.

To determine

Analyze the business transactions by indicating their effects on accounting equation.

Explanation of Solution

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

  Assets = Liabilities + Owners' Equity

  • Ȃ

2.

To determine

Analyze the business transactions by indicating their effects on accounting equation.

3.

To determine

Explain whether a transaction always affects at least 2 elements of accounting equation.

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Financial And Managerial Accounting
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