Just looking for clarification on how to treat the Income Statement when an asset-held-for-sale is sold.
Let’s say that you buy an asset at t = 0 for $100.
At t = 1 the asset is worth $130.
At t = 2, you finally sell the asset for $150.
What amount goes through that final period’s income statement? Is it the full $50 from initial purchase? Or is it jus the incremental $20?
At t=0 you’ve got a $100 Asset & $100 Equity.
At t=1, you’ve got $130 Asset on the Balance Sheet, and then your total equity is $130 as well, and it’s composed of $100 of retained earnings and $30 in an “unrealized gains” bucket.
At t=2, you’ve got $150 Cash on the Balance Sheet now, and your total equity is $150 as well, but what amount gets declared “Net Income” in the Income Statement?
A) You put the full $50 through the income statement. The balance sheet balances from your putting that full $50 into Retained Earnings and you “delete” the previous bucket of unrealized gains that was in the equity statement?
B) You put the incremental $20 gain through the income statement. The balance sheet balances from you putting that $20 into retained earnings, and then you also transfer the $30 of unrealized gains to the retained earnings bucket as well.