Final answer:
The sale of the truck for $40,000 resulted in a decrease in assets by the book value of the truck and a decrease in Owner's Equity by the loss amount. The truck's book value was calculated by subtracting Accumulated Depreciation from the original cost, with the sale resulting in a $10,000 loss as it sold for less than its book value.
Step-by-step explanation:
On January 1, 2018, when We-Haul sold its truck for $40,000, the truck had originally cost $110,000 with Accumulated Depreciation of $60,000. To determine the effect on the accounting equation, we need to calculate the gain or loss on the sale and understand how it impacts assets, liabilities, and equity (Owner's Equity). The book value of the truck at the time of sale is the original cost ($110,000) minus the accumulated depreciation ($60,000), which equals $50,000. Selling the truck for $40,000 means a loss of $10,000 because the selling price is less than the book value.
The accounting equation is: Assets = Liabilities + Owner's Equity. When the truck is sold, cash increases by $40,000, while equipment (truck's value) and accumulated depreciation are removed from the books. The loss decreases Owner's Equity. Therefore, the accounting equation would be adjusted with a decrease in the truck's book value from assets and a simultaneous decrease in Owner's Equity due to the loss on sale.