[The following information applies to the questions displayed below.] The plant

Question

[The following information applies to the questions displayed below.]

The plant assets section of the comparative balance sheets of Anders Company is reported below.

QS 12-5 Indirect: Computing investing cash flows LO P2

During 2017, equipment with a book value of $55,000 and an original cost of $285,000 was sold at a loss of $6,000.

1. How much cash did Anders receive from the sale of equipment?
  

2. How much depreciation expense was recorded on equipment during 2017?
  


3. What was the cost of new equipment purchased by Anders during 2017?
  

ANDERS COMPANY Comparative Balance Sheets 2017 2016 Plant assets Equipment $ 255,000 $ 345,000 Accum. Depr.—Equipment (130,000 ) (240,000 ) Equipment, net $ 125,000 $ 105,000 Buildings $ 455,000 $ 475,000 Accum. Depr.—Buildings (145,000 ) (330,000 ) Buildings, net $ 310,000 $ 145,000

Explanation / Answer

Answer 1) Receipts from sale of Equipment

Book Value of equipment

$   55,000.00

Less: loss incurred on sale

$      6,000.00

Cash received from sale

$   49,000.00

Answer 2) Calculation of Depreciation for the year

Opening Accumulated depreciation balance

$ 240,000.00

Less: Depreciation of Equipment sold(285000-55000)

$ 230,000.00

$ 10000.00

Less: Closing balance of Accumulated depreciation

$ 130,000.00

Depreciation Expense for the year

$ 120000.00

Note-

1) Accumulated depreciation on sold assets is Debited to accumulated depreciation account which increases the balance on Accumulated Depreciation Account.

2)The difference between book value and cost is equal to depreciation charged throughout the life of asset.

Answer 3) Calculation of Equipment purchased.

Gross Opening balance of Equipment account

$ 345,000.00

Less: Original value of Equipment sold during year

$ 285,000.00

$   60,000.00

Gross Closing balance of Equipment account

$ 255,000.00

Equipment purchased

$ 195,000.00*

*The Closing value of equipment account should have been opening balance minus equipment sold. But the closing balance is 255000 that means equipment is purchased too.

Answer 1) Receipts from sale of Equipment

Book Value of equipment

$   55,000.00

Less: loss incurred on sale

$      6,000.00

Cash received from sale

$   49,000.00

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