A vacant lot is acquired for $83,000 cash.  Later the owner borrows $52,000 against the land.  Three years later, the lot is then sold for $127,000 in cash. After receiving the $127,000 sales price in cash, the seller pay off the loan of the $52,000 owed. What is the effect of the $52,000 payment of the loan on the total amount of the seller’s (1) assets, (2) liabilities, and (3) stockholders’ equity?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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A vacant lot is acquired for $83,000 cash.  Later the owner borrows $52,000 against the land.  Three years later, the lot is then sold for $127,000 in cash. After receiving the $127,000 sales price in cash, the seller pay off the loan of the $52,000 owed. What is the effect of the $52,000 payment of the loan on the total amount of the seller’s (1) assets, (2) liabilities, and (3) stockholders’ equity?

 

  1. Assets increase $127,000; liabilities decrease $52,000; Stockholders’ equity increases $44,000
  2. The payment of the loan has no net effect on any of the categories
  3. Assets decrease $52,000; liabilities decrease $52,000; Stockholders’ equity increases $44,000
  4. Assets decrease $52,000; liabilities decrease $52,000; Stockholders’ equity is unchanged
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