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Need help with a problem: accounting transactions; assets, liabilities and stockholders' equity.?
A vacant lot acquired for $150,000, on which there is a balance owed of $80,000, is sold for $290,000 in cash. The seller pays the $80,000 owed. What is the effect of these transactions
on the total amount of the seller’s (1) assets, (2) liabilities, and (3) stockholders’ equity?
The easiest way to see it is to make a journal entry.
Dr Cash 290,000
Dr Mortgage Payable 80,000
Cr Land 150,000
Cr Gain on Sale of Land 220,000
Assets were increased by 140,000 (290,000 - 150,000)
Liabilities were decreased by 80,000
Stockholders' Equity was increased by 220,000