Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

How are gains reported on an income statement?

1. As total revenues minus total expenses

2. As the sale proceeds minus book value of the asset sold

3. As cash received from operations

4. As investments made in the company

The correct answer is: As the sale proceeds minus book value of the asset sold

Gains on an income statement are reported as the sale proceeds minus the book value of the asset sold. This method allows for a clear understanding of how much profit was realized from the sale of an asset. The book value represents the original cost of the asset minus any accumulated depreciation or expenses related to its ownership. When an asset is sold, the difference between what the asset was sold for (the sale proceeds) and its book value is the gain, which is recognized in the income statement. This provides a transparent view of the company's financial performance regarding asset management and profitability. The other options do not accurately reflect how gains are recognized in accounting practices. Total revenues minus total expenses provides a measure of overall profit but does not isolate gains from asset sales specifically. Cash received from operations relates to ongoing business activities rather than specific asset sales, and investments made in the company pertain to capital expenditures or funding activities rather than gains derived from asset disposition.