4. Equipment transaction and cash flow reporting Dec. 31, 20X4 Dec. 31, 20X3 Pro

Question

4.   Equipment transaction and cash flow reporting
   Dec. 31, 20X4    Dec. 31, 20X3
Property, Plant & Equipment:
Land   
$94,000   
$94,000
Equipment    652,000   527,000
Less: Accumulated depreciation    -316,000   -341,000

New equipment purchased during 20x4 totaled $280,000. The 20x4 income statement disclosed equipment depreciation expense of $41,000 and a $9,000 loss on the sale of equipment.
a.   Determine the cost and accumulated depreciation of the equipment sold during 20X4.
b.   Determine the selling price of the equipment sold.
c.   Show how the sale of equipment would appear on a statement of cash flows prepared by using the indirect method.

Explanation / Answer

a. Cost of the Equipment sold:

Equipment on 31Dec 2013 = $527,000

Equipment on 31Dec 2014 = $652,000

Balance should be on 31Dec 2014 = 527,000 + 280,000 = $807,000

Value of Equipment sold = 807,000 - 652,000 = $155,000

Accumulated Depreciation: 341,000 + 41,000 = 382,000 - 316,000= $66,000

b. Selling Price of the Equipment = Book value of the Equipment = 155,000 - 66,000 = $89,000

Less: Loss on sale = 9,000

Selling Price of the Equipment = 89,000 - 9,000 = $80,000

c. Sale of Equipment would appear as: Cash generated by sales of $80,000 would appear in cash from investing activities.

Loss of $9,000 would be added back to net income.

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