Effect of Transactions on Accounting Equation a. A vacant lot acquired for $321,

Question

Effect of Transactions on Accounting Equation

a. A vacant lot acquired for $321,000 is sold for $619,500 in cash. What is the effect of the sale on the total amount of the seller's (1) assets, (2) liabilities, and (3) owner's equity? If there is no change, select 'No change' from the dropdown and then enter a '0' in the amount box.

b. Assume that the seller owes $90,000 on a loan for the land. After receiving the $619,500 cash in (a), the seller pays the $90,000 owed. What is the effect of the payment on the total amount of the seller's (1) assets, (2) liabilities, and (3) owner's equity? If there is no change, select 'No change' from the dropdown and then enter a '0' in the amount box.

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

Explanation / Answer

Answer to Part 1: Effect Amount 1 Total Assets (619500-321000) Increase 298500 2 Total Liabilities No Change 3 Owners Equity (619500-321000) Increase 298500 Answer to Part 2: Effect Amount 1 Total Assets Decrease 90000 2 Total Liabilities Decrease 90000 3 Owners Equity No Change 298500 Answer to Part 3: No. The transaction will have always have an affect on atleast one element of Accounting transaction. Consider an example, if there is a Cash sale of $ 5000. The Accounting entry would be: We would be debiting Cash Account and Crediting Sales revenue account. Cash account forms part of assets and will have an impact on accounting equation. And sales revenue will form part of nominal account and will not have any impact on accouting equation.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.