Effect of transactions on accounting equationa. A vacant lot acquired for $307,000 is sold for $592,500 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.Effect1. Total assets2. Total liabilitiesAmount3. Owner's equityb. Assume that the seller owes $86,000 on a loan for the land. After receiving the $592,500 cash in (a), the seller pays the $86,000 owed. What is the effect of thepayment 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 andthen enter a '0' in the amount box. Consider only the payoff of the loan, without considering the sale of the land.Effect1. Total assetsAmount2. Total liabilities3. Owner's equityC. Is it true that a transaction always affects at least two elements (Assets, Liabilities, or Owner's Equity) of the accounting equation?

Answered: A vacant lot acquired for $307,000 is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Effect of transactions on accounting equation
a. A vacant lot acquired for $307,000 is sold for $592,500 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.
Effect
1. Total assets
2. Total liabilities
Amount
3. Owner's equity
b. Assume that the seller owes $86,000 on a loan for the land. After receiving the $592,500 cash in (a), the seller pays the $86,000 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. Consider only the payoff of the loan, without considering the sale of the land.
Effect
1. Total assets
Amount
2. Total liabilities
3. Owner's equity
C. Is it true that a transaction always affects at least two elements (Assets, Liabilities, or Owner's Equity) of the accounting equation?

Expert Solution

Step 1: Introduction

This equation shows, in simple terms, that a company's total assets are always equal to the amount of its liabilities plus owner equity. Cash, inventory, real estate, equipment, and other items of value that the business owns or controls are all referred to as assets. The company's responsibilities or debts, such as loans and accounts payable, are referred to as liabilities. Owner's equity, which reflects the owner's ownership share in the company, is the remaining interest in the assets after liabilities have been subtracted.

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