Question

On January 1, Year 5, Raven Limo Service, Inc. Raven sold a used limo that had cost $64,000 and had accumulated depreciation of $36,000. The limo was sold for $26,000 cash. Which of the following shows how the sale of the limo would affect Raven's financial statements?

a. Cash- 26,000
b. Limo- (64,000)
c. Acc Dep- (36,000)
d. Liab- NA
e. Equity- (2,000)
g. Gain- NA
h. Loss- 2,000
I. Net Inc- (2,000)
j. Cash Flow- 26,000 IA

Answer 1

Raven Limo Service recorded the sale of a used limo with a cash increase of $26,000, an asset decrease of $64,000, a decrease in accumulated depreciation of $36,000, and recognized a $2,000 loss on the sale. This affects net income and equity by decreasing them by $2,000 and increases cash flow from investing activities by the same amount.

Step-by-step explanation:

When Raven Limo Service, Inc. sold their used limo, the transaction would be recorded in the financial statements in the following way:

This transaction would have resulted in a loss on sale being reported in Raven's income statement, a decrease in assets on the balance sheet, and an increase in cash flows in the cash flow statement.