Effects of Transactions on Accounting Equation A vacant lot

Effects of Transactions on Accounting Equation A vacant lot acquired for $500,000, on which there is a balance owed of $300,000, is sold for $660,000 in cash. The seller pays the $300,000 owed. What is the effect of these transactions on the total amount of the seller\'s (1) assets, (2) liabilities, and (3) stockholders\' equity? 1. Total assets decreased 160,000 X 2. Total labilities decreased 3. Stockholders\' equity increased o x

Solution

Solution:

1. Total Assets: Decreased $140,000

= Sale value - (Aquisition value + Balance Owed)

= $660,000 - ($500,000 + $300,000)

= $660,000 - $800,000

= -$140,000

2. Total Liabilities: Decreased by $300,000.

3. Stock holder\'s Equity: Increased by $160,000

= sale value - acqusition value

= $660,000 - $500,000

= $160,000.