How would WDB’s net income be affected by the sale of cattle from Pen 231? (Ignore the effect of taxes.)

Question

BlackTom AI · Accepted Answer

To assess how WDB’s net income would be affected by the sale of cattle from Pen 231, we would need specific financial details that are not provided here, such as the selling price of the cattle and the cost basis of the cattle in inventory. Without these numbers, we cannot compute the gain or loss on sale, which is what would drive any change in net income.

Consider what would influence the outcome: (1) If the selling price exceeds the cost basis, there is a gain that would increase net income; (2) If the selling price is below the cost basis, there is a loss that would decrease net income; (3) If there is no change in inventory or if the sale is entirely offset by a reduction in cost of goods sold and there are no other effects, the net impact could be zero, but this is a specific scenario that requires exact figures; (4) If the sale is of cattle that were not previously recorded as inventory (for example, production costs capitalized differently or a transfer within the same entity), the effect on net income could differ, but again we need numbers to determine this.

Now, evaluating the provided answer options conceptually:
- Option A: "Net income would not be affected by this transaction." This would imply either no gain or loss on sale or an offsetting entry that leaves net income unchanged. Without price and cost data, this cannot be assumed to be true; generally a sale from inventory changes revenue and cost based on the gain or loss realized.
- Option B: "Net income would decrease by $115,000." A definitive decrease would require that the cost basis exceeds the selling price by $115,000. Without knowing those figures, this exact amount is speculative and unsupported.
- Option C: "Net income would increase by $128,000." Similarly, this would require a $128,000 gain on sale, which depends on selling price minus cost. Absent numbers, selecting a specific positive gain is speculative.
- Option D: "Net income would increase by $13,000." This would reflect a modest gain, again contingent on actual sale prices and costs. Without data, we cannot confirm this figure.

In other words, all answer choices present results that hinge on concrete financial figures (selling price, cost of cattle, and any related costs). Since those figures are not provided in your question, none of the options can be definitively proven correct or incorrect based solely on the information given. The correct approach is to obtain the sale price and the cattle’s cost (and any related costs) to compute the exact gain or loss on sale and then determine the net income impact accordingly.

BMGT220 Mini Case 2 Quiz

How would WDB’s net income be affected by the sale of cattle from Pen 231? (Ignore the effect of taxes.)

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