Assume that the seller owes $84,000 on a loan for the land. After receiving the $580,000 cash in (a), the seller pays the $84,000 owed. What is the effect of the payment on the total amount of the seller's (1) assets, (2) liabilities, and (3) stockholders' equity? If there is no change, select 'No change' from the dropdown and then enter a '0' in the amount box. Consider only the payoff of the loan, without considering the sale of the land.

Question

Line Item Description E

Answer 1

To analyze the effect of the seller's loan payment of $84,000 on their financials, we need to consider the implications for assets, liabilities, and stockholders' equity.

1. Assets: When the seller pays off the loan, they will decrease their cash asset by $84,000 (assuming the payment is made from cash). Therefore, assets will decrease.

   • Change in Assets: Decrease by $84,000

2. Liabilities: The $84,000 loan is a liability. When the seller pays off the loan, this liability will decrease by the same amount.

   • Change in Liabilities: Decrease by $84,000

3. Stockholders' Equity: The payment of the loan does not directly affect stockholders' equity other than through the reduction in liabilities. Since both assets and liabilities decrease by the same amount, there will be no change to stockholders' equity overall.

   • Change in Stockholders' Equity: No change (amount: 0)

In summary:

• Change in Assets: Decrease by $84,000
• Change in Liabilities: Decrease by $84,000
• Change in Stockholders' Equity: No change (0)