Question

Disposal of Fixed Asset

Equipment acquired on January 8, 20Y1, at a cost of $730,000, has an estimated useful life of 18 years and an estimated residual value of $146,000.

a. What was the annual amount of depreciation for the years 20Y1, 20Y2, and 20Y3, using the straight-line method of depreciation? Round annual depreciation to the nearest dollar and use this amount in your follow-on calculations.

	Depreciation expense
20Y1	$
20Y2	$
20Y3	$

b. What was the book value of the equipment on January 1, 20Y4?
$

For decreases in accounts or outflows of cash, enter your answers as negative numbers. If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank.

c. Assuming that the equipment was sold on January 7, 20Y4, for $255,500, illustrate the effects on the accounts and financial statements of the sale.

Statement of Cash Flows Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity + - = Jan. 7. Statement of Cash Flows Income Statement

d. Assuming that the equipment was sold on January 7, 20Y4, for $949,000 instead of $255,500, illustrate the effects on the accounts and financial statements of the sale.

Statement of Cash Flows Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity + - = Jan. 7. Statement of Cash Flows Income Statement

Answer 1

Cost of equipment	730,000
Less: estimated residual value	146,000
Depreciable cost	584,000
Divided by: estimated useful life	18
Depreciation per year	32,444
Depreciation expense
20Y1	32,444
20Y2	32,444
20Y3	32,444
Cost of equipment	730,000
Less: accumulated depreciation (32444*3)	97,332
Book value of the equipment on January 1, 20Y4	632,668

Cost of equipment	730,000
Less: accumulated depreciation (32444*3)	97,332
Book value of the equipment on January 1, 20Y4	632,668
Less: sale of equipment	255,500
Loss on sale of equipment	377,168
Cost of equipment	730,000
Less: accumulated depreciation (32444*3)	97,332
Book value of the equipment on January 1, 20Y4	632,668
Less: sale of equipment	949,000
Loss (gain) on sale of equipment	(316,332)

c. Assuming that the equipment was sold on January 7, 20Y4, for $255,500, illustrate the effects on the accounts and financial statements of the sale.

Statement of Cash Flows

Balance Sheet

Assets

=

Liabilities

+

Stockholders' Equity

Cash

+

equipment

-

accumulated depreciation

=

Retained earnings

Jan. 7.

255,500

(730,000)

(97,332)

(377,168)

Statement of Cash Flows

Income Statement

255,500

Investing activity

(377,168)

Loss on sale of equipment

d. Assuming that the equipment was sold on January 7, 20Y4, for $949,000 instead of $255,500, illustrate the effects on the accounts and financial statements of the sale.

Statement of Cash Flows

Balance Sheet

Assets

=

Liabilities

+

Stockholders' Equity

Cash

+

equipment

-

accumulated depreciation

=

Retained earnings

Jan. 7.

949,000

(730,000)

(97,332)

316,332

Statement of Cash Flows

Income Statement

949,000

Investing activity

316,332

gain on sale of equipment