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 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 financial statements? 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Quizplus · Accepted Answer

The cash received increases assets by $32,000, the machine (and its accumulated depreciation) decrease assets 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 equity. 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