Which action increases one asset and decreases another asset by the same amount if sold at book value?

Which action increases one asset and decreases another asset by the same amount if sold at book value?

• A. Purchasing property and equipment with credit.
• B. Purchasing property and equipment with cash.
• C. Selling property and equipment for cash
• D. Depreciating property and equipment.

Answer: (C)

The key idea is exchanging assets at their carrying value. When property and equipment is sold for cash at book value, the cash account increases by the sale amount while the property and equipment account decreases by the same amount. Since the sale price equals the asset’s carrying value, there’s no gain or loss recognized, so total assets remain unchanged. The journal entry would reflect a debit to Cash and a credit to Property and Equipment for the same amount, showing a pure reallocation between two asset accounts. Purchasing property and equipment with cash or on credit doesn’t fit because it doesn’t involve a sale that rebalances two asset accounts; it changes asset composition or creates a liability, not a one-for-one swap of one asset for another. Depreciating property and equipment reduces the book value of the asset and records depreciation expense (affecting equity), not an increase in a different asset.

The key idea is exchanging assets at their carrying value. When property and equipment is sold for cash at book value, the cash account increases by the sale amount while the property and equipment account decreases by the same amount. Since the sale price equals the asset’s carrying value, there’s no gain or loss recognized, so total assets remain unchanged. The journal entry would reflect a debit to Cash and a credit to Property and Equipment for the same amount, showing a pure reallocation between two asset accounts.

Purchasing property and equipment with cash or on credit doesn’t fit because it doesn’t involve a sale that rebalances two asset accounts; it changes asset composition or creates a liability, not a one-for-one swap of one asset for another. Depreciating property and equipment reduces the book value of the asset and records depreciation expense (affecting equity), not an increase in a different asset.