The following entry was recorded by Hollow Inc.: $$\begin{array} { | l | r | r | }
\hline \text { Cash } & 70,000 & \
\hline \text { Accumulated depreciation } & 30,000 & \
\hline \text { Gain on disposal of property, plant and equipment (PPE) } & & 10,000 \
\hline \text { PPE } & & 90,000 \
\hline
\end{array}$$ What is the effect on Hollow's financial statements?

Question

The following entry was recorded by Hollow Inc.: $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 70,000 & \
\hline \text { Accumulated depreciation } & 30,000 & \
\hline \text { Gain on disposal of property, plant and equipment (PPE) } & & 10,000 \
\hline \text { PPE } & & 90,000 \
\hline
\end{array}$$ What is the effect on Hollow's financial statements?

Quizplus · Accepted Answer

The entry shows that Hollow sold PPE for $90,000, received $70,000 in cash, had accumulated depreciation of $30,000 and recognized a gain of $10,000 on the sale. The net effect on the financial statements is an increase in net assets of $10,000 ($90,000 - $30,000 - $70,000 + $10,000). Therefore, choice B, Net assets increased by $10,000, is the correct answer. Choice A is incorrect because the entry does not indicate any financing activities. Choice C is incorrect as the gain on disposal is already included in the cash inflow of $70,000. Choice D is incorrect as there is no information given regarding a decrease in retained earnings.

The Following Entry Was Recorded by Hollow Inc What Is the Effect on Hollow's Financial Statements? A)A Cash

The Following Entry Was Recorded by Hollow Inc What Is the Effect on Hollow's Financial Statements?
A)A Cash