Schubert Co. owned equipment that originally cost $48,000. On January 1, Year 6, the company sold the equipment for $16,000 cash. Accumulated depreciation on the day of sale amounted to $34,000. Based on this information, indicate whether each of the following statements is true or false.________ a) The sale will increase Schubert's net income, but it will not affect the company's operating income.________ b) Schubert would show a $16,000 cash inflow in the operating activities section of the cash flow statement.________ c) The sale would result in a decrease in total assets.________ d) The sale would increase Schubert's stockholders' equity by $2,000.________ e) The sale would be recorded as a debit to cash for $16,000, a credit to equipment for $14,000, and a credit to gain on sale of

Question

equipment for $2,000.

What will be an ideal response?

Answer 1

a) T b) F c) F d) T e) F

a) This is true. The $2,000 gain on the sale is reported on the income statement below operating income.
b) This is false. The $16,000 cash inflow is reported as an investing activity, not an operating activity.
c) This is false. The sale will result in an increase in total assets because the cash received is greater than the book value of the asset.
d) This is true. The $2,000 gain on the sale will increase retained earnings.
e) This is false. The sale would be recorded as a debit to cash for $16,000, a debit to accumulated depreciation for $34,000, a credit to equipment for $48,000, and a credit to gain on sale of equipment for $2,000 (to balance the entry).