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Question:
A company sold a piece of equipment for $10,000. The historical cost of this equipment was $20,000 and accumulated depreciation on the equipment amounted to $8,000. The effect of this transaction alone is most likely that:
A
CFO will exceed net income by $2,000.
explanation
Book value of equipment = $20,000 – $8,000 = $12,000
Gain/(loss) on sale = $10,000 – $12,000 = –$2,000
Because the company makes a loss on the sale, CFO will be greater than net income.
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