Question

The Austin Land Company sold land for ‎₱85,000 in cash. The land was originally purchased for ‎₱65,000. At the time of the sale, ‎₱40,000 was still owed to Regions Bank. After the sale, The Austin Land Company paid off the loan. Explain the effect of the sale and the payoff of the loan on the accounting equation.

Answer 1

	Asset	=	Liabilities	+	Equity	Reason
Effect of sale	+85000 cash -65000 land sold Net effect = +20000				+20000 gain on sale	Sale of land will reduce the land balance by its cost of 65000 as well as at the same time increases cash by 85000. Also there is a gain of20000 which is closed to equity
payment of loan	-40000 cash		-40000 loan paid

#

1)Gain on sale of land =Sale value -book value

                 = 85000 -65000

                 = 20000