Final answer:
Yes, you can determine the cash proceeds from the sale of assets by adding a gain or subtracting a loss from the net book value. This allows you to calculate the amount received from the sale. The formula is simple and accounts for both gains and losses on asset sales.
Step-by-step explanation:
If a company reports a gain or loss from the sale of assets on the income statement, and the net book value of those assets on the date of the sale is known, we can determine the amount of the cash proceeds from the sale. The procedure for calculation is straightforward. If there is a gain, you would add the gain to the net book value of the assets to determine the cash proceeds. Conversely, if there is a loss, you would subtract the loss from the net book value to find the cash proceeds. This formula represents the relationship between the gain/loss, the net book value, and the cash proceeds from sale of assets.
For example, if a company sold an asset with a net book value of $10,000 and reported a gain of $2,000 on the income statement, the cash proceeds from the sale can be calculated by adding the gain to the net book value: $10,000 (net book value) + $2,000 (gain) = $12,000 (cash proceeds). Similarly, if the company reported a loss, you would subtract the loss amount from the net book value to determine the cash proceeds.
Therefore, the correct answer to the question of whether the cash proceeds can be determined is Yes, the outcome would depend on whether there is a gain or a loss on the sale of assets. If it's a gain, you add it to the net book value (Option b), and if it's a loss, you subtract it from the net book value.