Question

On January 1, Year 1, Prairie Enterprises purchased a parcel of land for $28,000 cash. At the time of purchase, the company planned to use the land for a warehouse site. In Year 3, Prairie Enterprises changed its plans and sold the land. Required a. Assume that the land was sold for $29,500 in Year 3. 1. Show the effect of the sale on the accounting equation. 2. What amount would Prairie report on the Year 3 income statement related to the sale of the land? 3. What amount would Prairie report on the Year 3 statement of cash flows related to the sale of the land? b. Assume that the land was sold for $24,000 in Year 3. 1. Show the effect of the sale on the accounting equation. 2. What amount would Prairie report on the Year 3 income statement related to the sale of the land? 3. What amount would Prairie report on the Year 3 statement of cash flows related to the sale of the land?

Answer 1

Solution and Explanation:

a1) Accounting equation :

PRAIRIE ENTERPRISES

Accounting equation, year 3

Assets = Stockholder's equity

Cash Land = Common Stock + Retained earnings

29500 -28000 = 0 + 1500

a2)

a2 Gain of Sale of land = $1500

a3 Cash flow from investing activities = $29500

b1) Accounting equation :

PRAIRIE ENTERPRISES

Accounting equation, year 3

Assets = Stockholder's equity

Cash Land = Common Stock + Retained earnings

24000 -28000 = 0 + -4000

b2)

b2 Loss of Sale of land = -$4000

b3 Cash flow from investing activities = $24000