Mercury Company reports depreciation expense of $46,000 for Year 2. Also, equipment costing $159,000 was sold...

Mercury Company reports depreciation expense of $46,000 for Year 2. Also, equipment costing $159,000 was sold for its book value in Year 2. There were no other equipment purchases or sales during the year. The following selected information is available for Mercury Company from its comparative balance sheet. Compute the cash received from the sale of the equipment.

At December 31	Year 2	Year 1
Equipment	$640,000	$799,000
Accumulated depreciation-equipment	452,000	530,000

a	$35,000.
b	$81,000.
c	$78,000.
d	$39,000.

Expert Solution

All working forms part of the answer
The question says that the equipment has been sold at its ‘book value’. Book Value of equipment = Cost – Accumulated Depreciation till the time of sale.

Cost of the equipment is given as $ 159,000. We need to calculate the Accumulated Depreciation on the equipment sold.

Calculation of Accumulated Depreciation on Equipment Sold:

Working	Accumulated Depreciation - Equipment
A	Beginning Balance [Year 1 Balance]	$ 530,000.00
B	Depreciation expense for Year 2	$ 46,000.00
C	Ending Balance [Year 2 balance]	$ 452,000.00
D = A + B - C	Accumulated Depreciation on Equipment Sold	$ 124,000.00

Hence, the accumulated depreciation on the equipment sold = $ 124,000, while it costs was $ 159,000
Calculation of Cash received from the sale of equipment:

---Cash received = Book Value of equipment = Cost – Accumulated Depreciation.

A	Cost of Equipment sold	$ 159,000.00
B	Accumulated Depreciation on Equipment Sold	$ 124,000.00
C = A - B	Book Value	$ 35,000.00

Since the equipment has been sold at ‘book value’, the cash received from sale = $ 35,000.
Correct answer = Option ‘a’ $ 35,000

ekkarill92 answered 1 year ago

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