If a Parcel of Land That Was Originally Purchased for $85,000

question 88

Multiple Choice

If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000. At the time of the sale, assume that the seller still owed $30,000 to TrustOne Bank on the land that was purchased for $85,000. Immediately after the sale, the seller paid off the loan to TrustOne Bank. What is the effect of the sale and the payoff of the loan on the accounting equation?

• A) Assets increase $52,000; owner's equity increases $22,000; liabilities decrease $30,000
• B) Assets increase $52,000; owner's equity increases $30,000; liabilities decrease $30,000
• C) Assets increase $22,000; owner's equity increases $52,000; liabilities decrease $30,000
• D) Assets decrease $30,000; owner's equity decreases $30,000; liabilities decrease $30,000
• E) Assets decrease $55,000; owner's equity decreases $55,000; liabilities decrease $30,000

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Definitions:

Variable Manufacturing Overhead

Variable manufacturing overhead refers to the manufacturing costs that vary with the level of production output, such as utilities and certain labor costs.

Variable Cost

Costs that vary directly with the level of production or volume of output.

Fixed Cost

A cost that remains constant regardless of the level of goods or services produced within a certain range.

Break-even Sales

The amount of revenue required to cover a company's total fixed and variable costs.