Question

When a machine having a net book value of $15,000 is sold for $12,000:

A.current assets increase, equipment (net) decreases, and net income decreases.
B. current assets decrease, equipment (net) increases, and net income increases.
C. current assets increase, equipment (net) decreases, and net income increases.
D. current assets increase, equipment (net) increases, and net income decreases.

Answer 1

The sale of a machine for less than its net book value leads to an increase in current assets, a decrease in equipment (net), and a decrease in net income.

Step-by-step explanation:

When a machine having a net book value of $15,000 is sold for $12,000, the correct answer is option A: current assets increase, equipment (net) decreases, and net income decreases. This transaction results in cash (a current asset) increasing by $12,000, which is the sale price of the machine. The equipment account on the balance sheet, which reflects net book value, decreases by $15,000, the original value of the machine. Lastly, there is a loss on the sale of the asset because the machine sold for less than its book value; hence, net income decreases by $3,000 ($15,000 - $12,000).