A machine with a book value of $38,000 is sold for $32,000.Which of the following answers would accurately represent the effects of the sale on the elements of the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question

A machine with a book value of $38,000 is sold for $32,000.Which of the following answers would accurately represent the effects of the sale on the elements of the financial statements?

A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

The sale increases assets (cash)by $32,000,decreases assets (machine less its accumulated depreciation)by $38,000,for a net decrease in assets of $6,000.Because the machine is sold for $6,000 less than its book value,the company records a loss on the sale of $6,000,which decreases net income and stockholders' equity (retained earnings).The $32,000 cash received is reported as a cash inflow from investing activities.

A Machine with a Book Value of $38,000 Is Sold