At the end of 2013, Geothermal Heating Ltd. had total assets of $17.4 million and total liabilities of $9.2 million. Included among the assets were property, plant, and equipment with a cost of $4.8 million and accumulated depreciation of $3.4 million.
Assume that Geothermal Heating completed the following selected transactions during 2014. The company earned total revenues of $26.5 million and incurred total expenses of $21.3 million, which included depreciation of $1.7 million. During the year, Geothermal Heating paid $1.4 million for new equipment and sold old equipment for $0.3 million. The cost of the assets sold was $0.8 million, and their accumulated depreciation was $0.4 million.
Requirements
1. Explain how to determine whether Geothermal Heating had a gain or loss on the sale of old equipment during the year. What was the amount of the gain or loss, if any?
2. How will Geothermal Heating report property, plant, and equipment on the balance sheet at December 31, 2014, after all the year's activity? What will the carrying amount of property, plant, and equipment be?
3. How will Geothermal Heating report operating activities and investing activities on its statement of cash flows for 2014? The company's statement of cash flows starts with net income.