Question

When a company sells a long-lived asset, stockholders' equity will change by the:

• amount of the asset's book value.

• difference between the sales price and the asset's book value.

• amount of the asset's Accumulated Depreciation.

• amount of the sale.

Answer 1

When a company sells a long-lived asset, stockholders' equity will change by the:

(b) difference between the sales price and the asset's book value as the difference between the sales price and the asset's book value will be the profit or loss on the sale of fixed assets to the company that will directly impact the income statement, that ultimately effects the stockholders' equity.

Amount of assets book value gets credited which has no relation to the shareholder's equity.

Amount of the asset's Accumulated Depreciation gets debited which also does not affect shareholder's equity.

Amount of the sale is the cash received from sale of the asset which increases the asset of the company and does not affect shareholder's equity.

So option (b) is the correct answer.