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13 June, 10:05

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

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  1. 13 June, 12:10
    0
    Amount owed on a loan for the land = $80,000

    Payment in cash for the loan = $80,000

    (1) Assets decreases by $80,000 as cash is used for the payment of loan.

    (2) Liabilities also decreases by the $80,000 i. e decrease in liability as the loan is settled down.

    (3) Stockholders' equity: There is no change occurred in the seller's stockholders equity.
  2. 13 June, 13:30
    0
    Assets = Capital + Liabilities

    Cash (-80000) Loan (-80000) [Loan paid by cash]

    Explanation:

    This treatment can be shown as effect on 'Accounting Equation'

    Assets = Capital + Liabilities

    Previous Details : Loan added in Liability = 80000

    Cash Received : Cash Added in Assets = 298000; and Asset on A/c of which cash is received (Eg: Debtor / Accrued Income) minus from Assets = 298000

    Cash Received & Loan Paid : Cash minus from Assets = 80000; and

    Loan minus from Liability = 80000
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