Question

Which of the following transactions would have no impact on stockholder's equity?

• A. Purchase of land from the proceeds of a bank loan.
• B. Dividends to stockholders.
• C. Net loss.
• D. Investments of cash by stockholders.

Answer 1

Answer: (A)

Purchase of land from the proceeds of a bank loan.

Shareholders’ equity consists of share capital plus retained earnings. It also represents the residual value of assets minus liabilities. Shareholders fund basically accumulated funds of shareholders.

Accounting equation: Shareholders’ fund = Assets-Liabilities

In the given question “Purchase of land from the proceeds of a bank loan” will not do impact on shareholders fund because as per double entry system it will impact on asset and liability side only. Land will do impact on asset and by bank loan liability will get increased.