A company sold a machine for \$15,000. How should this transaction be reported in the calculation of net sales on the income statement?

• A. It should be added to net sales as part of total sales revenue.
• B. It should be included in net sales only if the machine was sold at a loss.
• C. It should not be included in net sales, as it is not part of regular sales revenue.
• D. It should be deducted from net sales as a sales return.

Answer: (C)

Verified step by step guidance

1. Understand the concept of net sales: Net sales represent the revenue generated from the sale of goods or services that are part of the company's core operations, minus any sales returns, allowances, and discounts.
2. Identify the nature of the transaction: The sale of a machine is not part of the company's regular sales revenue. It is considered a disposal of an asset, which is reported separately in the financial statements under 'Other Income' or 'Gain/Loss on Sale of Assets.'
3. Clarify why it should not be included in net sales: Since net sales only include revenue from the company's primary business activities, the sale of a machine does not qualify as part of net sales. Including it would misrepresent the company's operational performance.
4. Determine the correct reporting: The proceeds from the sale of the machine should be reported in the income statement under a separate section, such as 'Other Income' or 'Non-Operating Income,' depending on whether there is a gain or loss on the sale.
5. Review the impact on financial statements: Ensure that the transaction is excluded from net sales and properly classified to maintain accurate reporting of the company's financial performance and compliance with accounting standards.