Question

On january 1, 2013, a company sold a piece of equipment for $30,000 which it had used for several years. the equipment had cost $45,000, and its accumulated depreciation amounted to $20,000 at the time of the sale. what are the net effects on the accounting equation of selling the equipment?

a. assets and shareholders' equity increase $30,000.
b. assets and shareholders' equity increase $5,000.
c. assets and shareholders' equity decrease $5,000.
d. assets decrease and shareholders' equity increases $5,000

Answer 1

Book value on the date of disposal
Cost of the equipment - accumulated depreciation
45000-20000=25000

Gain on disposal of the equipment
Proceeds from sales - book value on the date of disposal
30000-25000=5000

The amount of gain on disposal (5000) is reported under “Other revenues and
gains” section of the income statement which increase the profit which transferred into shareholders equity. Also, the account of the equipment will be zero

So the answer is d

Hope it helps!