Multiple Choice
Mkh Company sold a piece of land in 20X1 for $45,000. The land had originally been purchased for $60,000. What was the loss on the sale of land recorded by Mkh Company in 20X1?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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When cash is collected on accounts receivable, what effect does this transaction have on the balance sheet?
A
Total assets remain unchanged
B
Total liabilities decrease
C
Total assets increase
D
Owner's equity increases
Verified step by step guidance1
Understand the nature of accounts receivable: Accounts receivable represents money owed to the company by customers for goods or services already provided. It is classified as a current asset on the balance sheet.
Recognize the impact of cash collection: When cash is collected on accounts receivable, the company receives cash (another current asset) and reduces the accounts receivable balance. Both are asset accounts, so the total assets remain unchanged.
Analyze the effect on liabilities: This transaction does not involve any liability accounts, so total liabilities remain unchanged.
Evaluate the effect on owner's equity: Since this transaction does not involve revenue recognition or expenses, it does not directly impact owner's equity. Owner's equity remains unchanged.
Conclude the balance sheet impact: The collection of cash on accounts receivable results in a reclassification of assets (from accounts receivable to cash) without changing the total asset value, liabilities, or owner's equity.
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