A company sells used equipment with a book value of $100,000 for $250,000 cash.How would this transaction affect the company's balance sheet?
A) Equity rises $250,000;net plant and equipment falls $250,000.
B) Cash rises $250,000;net plant and equipment falls $100,000;equity rises $150,000.
C) Cash rises $250,000;accounts receivable falls $100,000;goodwill rises $150,000.
D) Cash rises $250,000;net plant and equipment falls $250,000.

Question

Quizplus · Accepted Answer

When a company sells used equipment for cash, it will result in a decrease in net plant and equipment on the balance sheet. In this case, the book value of the equipment was $100,000, so the net plant and equipment account will fall by $100,000. The company receives cash of $250,000 for the sale, which increases the cash account on the balance sheet. The difference between the book value of the equipment and the sale price is a gain for the company, which increases the equity account on the balance sheet. The gain is calculated as follows: 
Sale Price - Book Value = Gain on sale 
$250,000 - $100,000 = $150,000 
Therefore, the equity account will rise by $150,000 in addition to the $250,000 increase in cash and $100,000 decrease in net plant and equipment. So, option B is the correct answer.

A Company Sells Used Equipment with a Book Value of $100,000