What will be the effect of a sale of a piece of equipment at book value for cash?
A) An increase in working capital.
B) A decrease in working capital.
C) A decrease in the debt-to-equity ratio.
D) An increase in net income.

Question

Quizplus · Accepted Answer

A sale of equipment at book value for cash will result in an increase in cash, but since the book value represents the original cost of the equipment less its accumulated depreciation, there will be no gain or loss on the sale. Therefore, there will be no impact on the net income. However, since the cash received from the sale increases the current assets, there will be an increase in working capital.

What Will Be the Effect of a Sale of a Piece