4. In this exact same scenario (end of 2014), assume Holey Foods has equipment u

Question

4. In this exact same scenario (end of 2014), assume Holey Foods has equipment used exclusively for making its non-organic, non-local food. The equipment was bought for $7 Million on Jan 1, 2013 and uses Straight-Line depreciation. The equipment has an initial residual value of $2 Million and an expected useful life of five years. Another company, Groupoff, is willing and able to pay Holey Foods $1 Million for the equipment and there are no other potential buyers. The estimated future cash flows the equipment would help generate from use (not sale) are $20,000. Prior to any sale, what transaction should Holey Foods record? If no entry is needed, clearly write No Entry Needed. 2 points.

Journal Entry

Debit

Credit

Journal Entry

Debit

Credit

Explanation / Answer

Jan 1 2013 Debit Credit

Plant and equipment $2 million

Owners equity $5 million

Cash $7 million

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