Which one of the following statements is true when a company sells inventory costing $800 for $1,400 cash,and operating expenses are $500?
A)There is no change in current assets.
B)Stockholders' equity increases $100.
C)Gross profit increases $100.
D)Net sales increases $2,200.

Question

Quizplus · Accepted Answer

The sale of inventory for $1,400 cash increases cash (a current asset) by $1,400 and decreases inventory (another current asset) by $800, resulting in a net increase in current assets of $600, not leaving them unchanged. The gross profit from this transaction is $600 ($1,400 sales - $800 cost of goods sold), not $100. Operating expenses of $500 need to be subtracted from the gross profit to find the increase in stockholders' equity due to net income, which is $100 ($600 gross profit - $500 operating expenses). Net sales increase by $1,400, not $2,200, as this is the amount the inventory was sold for.

Which One of the Following Statements Is True When a Company