Asked by Riana Doretti on Jun 15, 2024
Verified
Which of the following statements is correct with respect to a loss on the sale of a depreciable asset?
A) Net income decreases and total assets increase.
B) Net income decreases and stockholders' equity increases.
C) Total assets decrease and stockholders' equity decreases.
D) Total assets increase and stockholders' equity decreases.
Loss On Sale
An economic condition wherein the selling price of an asset is less than its carrying value, resulting in a financial loss.
Total Assets
The total value of everything a company owns, including both current and non-current assets.
Net Income
The total earnings of a company after subtracting all expenses from revenue.
- Acquire knowledge on how to treat asset disposals in accounting, encompassing the determination of gains or deficits.
Verified Answer
SP
Sajan PanchalJun 18, 2024
Final Answer :
C
Explanation :
When a depreciable asset is sold at a loss, it results in a decrease in total assets (as the asset is no longer owned) and a decrease in stockholders' equity (due to the loss being subtracted from retained earnings). This decrease in stockholders' equity also leads to a decrease in net income. Therefore, option C is the correct statement.
Learning Objectives
- Acquire knowledge on how to treat asset disposals in accounting, encompassing the determination of gains or deficits.
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