Accounting Question... help?

Question

The Kennedy Company sold land for $60,000 in cash. The land was originally purchased for $40,000, and at the time of the sale, $15,000 was still owed to First National Bank on that purchase. After the sale, The Kennedy Company paid off the loan to First National Bank. What is the effect of the sale and the payoff of the loan on the accounting equation?

assets increase $20,000; liabilities decrease $15,000; owner's equity increases $5,000

assets increase $5,000; liabilities decrease $15,000; owner's equity increases $20,000

assets increase $60,000; liabilities decrease $15,000; owner's equity increases $20,000

assets increase $20,000; liabilities decrease $15,000; owner's equity increases $35,000

I picked :

assets increase $20,000; liabilities decrease $15,000; owner's equity increases $5,000

Because it is 20,000 extra made on the total cost of the land. And 15,000 was decreased because of what they owed. Then subtracting the liability (15,000) from the extra 20,000 would make an equity increase of 5,000. I believe that would balance the accounting equation.

Can someone check that for me?

Answer 1

[Answer:

I would have chosen the first one as well because as you said, you need to balance up the debit and credits.  Assets definitely go up by a net of 20,000, since the Company earned 60,000 cash less the 40,000 lost from the land account.  The mortgage owed to the bank was paid off, so liabilities go down 15,000 and by benefiting from the sold land, the owner's equity goes up $5000. ]