accounting question

It depends on whether the land was purchased for cash or loan.

Dr cash 75,000.00
....... Cr land 20,000.00
....... Cr profit 55,000.00

reply to the reply
lol, so is it a b c or d???
Thanks!

It's none of the above. They must declare the sales and pay capital gains tax.

thanks anyways
but my professor says that it is one of them....this is frustrating...I look in my book and I see nothing similiar.

That's because your professor is an idiot.

He can't combine cash with other assets such as land. Yes, both are assets, but the accounting entry cannot be:

DR.....assets............55,000.00
.....CR....equity......................55,000.00

There is no netting effect from this transaction.

When they purchased the land, the entry was:
DR LAND 20,000.00
....CR CASH 20,000.00
or
....CR PAYABLE 20,000.00

When they sold the land, the entry should be:

DR cash 75,000.00
....CR land................20,000.00
...CR....profit on sales..55,000.00


If the purchase was by loan, and the $20,000 was still outstanding, the
entry would be:

DR payable..........20,000.00
.....CR cash........................20,000.00

Finally, assets do increase by $75,000.00 (cash), but that's after land is CR by 20,000.00. So if he's talking about "net" increase, it's $55,000.00

It's a trick question that no professor should be addressing his students, but rather should ask for the compound entry - after more information is provided.

Thanks
Thank you! I have a much better idea of what the question is about now!

another question...about the question lol
So just to make an "educated" guess at what he may have tried to have been asking, "b" would be the best answer considering he made a $55,000 profit, am I right?

Yes, but there are detailed exceptions even with that answer.

Okay, that was a bit harsh.

Re: accounting question




The disposal of Land would look like Land 20,000.00cr
The receipt of cash Cash 75,000.00dr
The profit is shown as Gain/Loss 55,000.00cr

Sorry about the spacing of the entries. It just doesn't want to work.

The entry indicates a gain on disposal of 55,000.
The asset Land decreases 20,000.00. No depreciation to mess with on Land.
The asset Cash increases 20,000.00, of course. Total asset only increase by 55,000.00. Again "of course".



Whether liabilities are affected or not depends on whether the original purchase included a note payable, and if so, the outstanding balance. Not enough to make that determination. Agree with C.I.'s assessment of the professor.