Question

Gainey Enterprises and Herbst Industries both sold some equipment that was vital for their manufacturing operations. Gainey Enterprises reported the sale under discontinued operations on their comprehensive income statement, but Herbst did not. Which of the following statements is the most likely reason for this difference?

A : Herbst Industries likely used the cash from the sale to purchase equipment to use in administrative activities.
B : Herbst Industries likely replaced their old equipment with new equipment to be used in continuing operations.
C : Herbst Industries has not yet made the decision about whether they want to discontinue their manufacturing operations.
D : Herbst Industries made an error when preparing their financial statements.

Answer 1

The answer is: B) Herbst Industries likely replaced their old equipment with new equipment to be used in continuing operations.

Step-by-step explanation:

Gainey Enterprises discontinued their manufacturing operations, that is why they had to report the sale of the equipment under discontinued operations.

Instead, Herbst Industries continued their manufacturing processes, so there is no reason why they should report the sale of old equipment.