Ok, this is coming from Schweser Q Bank.
Asset A bought for 750 and sold for 1000 cash. Transactions affect which accounts?
Answer:
Purchase - Assets only
Sale - Assets, revenue, expenses, equity
Trying to think of the journal entries here, not sure where the 250 gain comes into account:
Purchase:
Dr. Chair 750
Cr. Cash 750
Sale:
Dr. Cash 1000
Cr. Revenue 1000
Dr. COGS 750
Cr. Chair 750
Answer says $250 gain will effect OE, but what is the JE for the 250 gain that affects equity? Are we assuming COGS is actually 1000? Or is it just the assumption that the Revenue - COGS of 250 flows through to OE via net income?
Is this a company whose business it is to buy and sell chairs? Or is the chair a piece of their office equipment?
You show a gain only when you sell fixed assets, so it sounds like the latter.
The question mentions it being a furniture store, so it’s business is buying and selling a set of chairs. The answer specifically says a gain of 250, but as you say that would only make sense on selling a depreciable asset for more than its depreciated BV. I mean technically revenue and expense are part of equity, and the net of revenue and COGS is 250, but they make it sound like it deserves a separate entry, and unfortunately it doesn’t outline the specific entries.