On September 10, Year 5, Farmer Company sold a piece of equipment for $6,000. 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

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The cash account increases by $6,000, the equipment account decreases by $34,000, and the accumulated depreciation account decreases by $31,000, resulting in a net increase in assets of $3,000. Because the selling price is $3,000 greater than the equipment's book value ($34,000 - $31,000), Farmer reports a gain on the sale of $3,000, which increases revenue (gain), net income, and equity. The $6,000 cash proceeds are reported as a cash inflow for investing activities.

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