Wednesday, January 26, 2011

In accounting, The K company sold land for $60,000 in cash. The land was origanally purchased (Details Below)?

for $40,000, and at the time of the sale, $15,000 was still owed to First Bank on that purchased. After the sale, the K company paid off the loan to First Bank. What is the effect of the sale and the payoff of the loan on the accounting equation?


each transaction would have an equal effect on both sides of the equation

So the 60,000 would be a debit in cash assets

and a credit in equity

The 15,000 would be a debit/credit in acct. pay. and cash

And the 40,000 would be a credit/debit in land and equity

I think

assets +5,000 (land -40000, cash +60000; cash -15000)

liabilities -15000 (a/p -15000)

owners equity -10,000

i think

The effect on the acctg equation is zero, because:

The net on the asset side is a plus 5 because the proceeds minus the loan payoff vs the orig cost. And the net on the liab/equity side is also plus 5 because of the gain on sale vs the loan payoff.

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