On September 10, Year 5, Farmer Company sold a piece of equipment for $6,000 cash. The equipment had an original cost of $34,000 and accumulated depreciation of $31,000 at the time of the sale. Which of the following correctly shows the effect of the sale on the Year 5 financial statements?

Question

Quizplus · Accepted Answer

Option A is incorrect because it does not properly adjust for the sale of the equipment. The equipment's original cost and accumulated depreciation are still included on the balance sheet, so the asset and equity totals would be overstated.

Option B is incorrect because it incorrectly removes the entire equipment cost, including the accumulated depreciation. This would result in an understatement of the net income and an overstatement of the loss on disposal.

Option C is correct because it properly removes the equipment's cost and accumulated depreciation, while recognizing the loss on disposal. This will result in a lower asset balance, lower equity balance, and a decrease in net income for the year.

Option D is incorrect because it does not adjust for the loss on disposal of the equipment. This would result in an understatement of the loss and a higher net income for the year.

On September 10, Year 5, Farmer Company Sold a Piece