Amanda Company purchased a computer that cost $10,000.It had an estimated useful life of five years and a residual value of $1,000.The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash. Which of the following statements correctly describes the computer sale?
A)Assets and stockholders' equity both increase by $5,000.
B)Assets decrease $5,000 and stockholders' equity is not affected.
C)Assets and stockholders' equity both decrease by $400.
D)Assets and stockholders' equity both increase by $400.

Question

Quizplus · Accepted Answer

The computer depreciates $1,800 per year (($10,000 - $1,000) / 5 years). After three years, it has depreciated $5,400, making its book value $4,600 ($10,000 - $5,400). Selling it for $5,000 results in a $400 gain, increasing both assets (cash) and stockholders' equity by $400.

Amanda Company Purchased a Computer That Cost $10,000