Question

ASSET DEPRECIATION AND DISPOSITION

SMS Corporation purchased a new machine for $93,600 on January 1, 20Y1. At that time, SMS expected to use the machine for 10 years and then sell it for $9,360. The machine was sold on June 30, 20Y2, incurring a loss on sale of $2,964. SMS used straight-line depreciation. Show the impacts of the above transaction on the financial statements of SMS for 20Y2.

List account names or descriptions in the first column and amounts in the second column. Please include the appropriate dollar sign and commas (example $25,000). Please place negative numbers in parenthesis ($25,000). You must show all work including the t-account entries on your scrap piece of paper to receive credit for this problem.

Impact on Cash Flows for the 20Y2
Net Impact on Cash Flow

Impact on Earnings for 20Y2
Net Impact on Earnings

Cumulative Impact on Balance Sheet Elements for 20Y2
ASSETS:
Cumulative Change in Assets
LIABILITIES + EQUITY:
Cumulative Change in Liabilities + Equity

Answer 1

Depreciation per year on machine =($93,600 - $9,360) / 10 Years =$8,424
Depreciation for 6 months of 20Y2 =$8,424*6/12 =$4,212
So Accumulated Depreciation =$8,424 + $4,212 =$12,636
So the Journal entry will be:
Date	Account explanation	Debit	Credit
June 30, 20Y2	Depreciation expense	$                                        4,212
	Accumulated Depreciation-Equipment		$                             4,212
	(to depreciation charged for 6 months)
June 30, 20Y2	Cash(B.F.)	$                                      78,000
	Accumulated Depreciation-Equipment	$                                      12,636
	Loss on sale of Equipment	$                                        2,964
	Equipment		$                           93,600
	(to equipment sold at loss recorded)
Impact of Cash Flow	Cash Inflow shown in Investing Activities	$78,000
Impact of Earnings	Loss on Sale of Equipment	($2,964)
Cumulative Change in Assets	Equipment($78,000-$80,964)	($2,964)
Cumulative Change in Liabilities + Equity	Retained Earnings	($2,964)
Note:
In case of Assets there is cash inflow of $78,000 and Equipmemnt has reduced by $80,964($93,600-$12,636)
In case of Equity there is a loss of $2,964 which will reduce the Reatined earnings by $2,964