[amp_mcq option1=”leave owner’s equity unaffected” option2=”increase owner’s equity to the extent of less value” option3=”increase owner’s equity by the amount of sale” option4=”increase owner’s equity to the extent of profit on sale” correct=”option4″]
The correct answer is D.
When an asset is sold on credit, the seller records the sale as a receivable. The receivable is an asset because it represents a future economic benefit to the seller. The seller also records the gain on sale, which is the difference between the sale price and the book value of the asset. The gain on sale increases owner’s equity.
Option A is incorrect because the sale of an asset on credit increases owner’s equity.
Option B is incorrect because the sale of an asset on credit increases owner’s equity by the amount of the gain on sale, not the less value of the asset.
Option C is incorrect because the sale of an asset on credit increases owner’s equity by the amount of the gain on sale, not the amount of the sale.