Question

Sold a delivery van with a net book value of $5,000 for $6,000 cash, reporting a gain of $1,000. How should this be reported on the income statement?

a) Increase in operating income by $6,000
b) Increase in operating income by $1,000
c) Increase in operating income by $5,000
d) No impact on operating income

Answer 1

The sale of the delivery van with a net book value of $5,000 for $6,000 results in a gain of $1,000, which should be reported as an increase in operating income by $1,000 on the income statement.

Step-by-step explanation:

When a company sells an asset, such as a delivery van, the transaction needs to be reported on the income statement. In this case, the delivery van, which had a net book value of $5,000, was sold for $6,000 cash. The difference between the sale price and the net book value represents a gain or loss. Since the van was sold for $1,000 more than its net book value, this is considered a gain. Therefore, the correct way to report this on the income statement is as an increase in operating income by $1,000, which corresponds to the actual gain realized from the sale.