Skip to main content
Pearson+ LogoPearson+ Logo
Back

Sale of Plant Assets quiz #1

Control buttons has been changed to "navigation" mode.
1/10
  • How do you determine whether a gain or loss is recognized when a plant asset is sold, and how is this reported on the income statement?
    A gain is recognized if the cash proceeds from the sale exceed the asset's net book value (cost minus accumulated depreciation), while a loss is recognized if the proceeds are less than the net book value. If the proceeds equal the net book value, no gain or loss is recorded. Gains and losses from asset sales are reported in the 'other income' section of the income statement.
  • What happens to the equipment, accumulated depreciation, and cash accounts when a plant asset is sold?
    When a plant asset is sold, the equipment account is decreased by the asset's original cost, the accumulated depreciation account is decreased by the accumulated depreciation related to the asset, and the cash account is increased by the amount of cash received from the sale.
  • How do you calculate the net book value of a plant asset when it is sold?
    Net book value is calculated as the asset's original cost minus its accumulated depreciation.
  • When is a gain recognized on the sale of a plant asset?
    A gain is recognized when the cash proceeds from the sale exceed the asset's net book value.
  • What happens if the cash proceeds from selling a plant asset are less than its net book value?
    A loss is recognized if the proceeds are less than the net book value.
  • Where are gains and losses from the sale of plant assets reported on the income statement?
    They are reported in the 'other income' section of the income statement, below operating income.
  • How does selling a plant asset affect the equipment account?
    The equipment account is decreased by the asset's original cost when it is sold.
  • What happens to the accumulated depreciation account when a plant asset is sold?
    The accumulated depreciation account is decreased by the accumulated depreciation related to the asset sold.
  • How is the cash account affected when a plant asset is sold?
    The cash account is increased by the amount of cash received from the sale.
  • How do gains and losses from asset sales affect net income?
    Gains are credits that increase net income, while losses are debits that decrease net income.