Question

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Blue Spruce Corporation sold equipment for $42000. The equipment had an original cost of $136000 and accumulated depreciation of $70000. Ignoring the tax effect, as a result of the sale,

A. net income will increase $42000.

B. net income will decrease $24000.

C. net income will increase $24000.

D. net income will decrease $42000.

Answer 1

The net income will increase by $24,000 as a result of the sale.

Step-by-step explanation:

The net income will increase by $24,000 as a result of the sale.

1. First, we need to calculate the book value of the equipment. The book value is the original cost minus accumulated depreciation:
2. Book value = Original cost - Accumulated depreciation
3. Book value = $136,000 - $70,000 = $66,000
4. Next, we need to calculate the gain on the sale. The gain is the selling price minus the book value:
5. Gain on sale = Selling price - Book value
6. Gain on sale = $42,000 - $66,000 = -$24,000
7. Since the gain is negative, it means there is a loss on the sale. But for accounting purposes, a loss on the sale is deducted from net income, resulting in an increase in net income:
8. Net income increase = Loss on sale = -$24,000

Therefore, the correct answer is option C: net income will increase $24,000.