Morgan Corporation reported the following related to property and equipment (all in millions):
From the balance sheets:

From the iversting activies section of the 2016 cash flow statement:
Cash used to puchase property and equipment ........................ ($2, 820)
Proceeds from sale fo property and equipment ........................ 56
From the 2016 income statement:
Depreciation expense ............................. $ 1,145
Gain or loss on the sale of equipment ..........?
Requirements
1. Draw T-accounts for Property and Equipment and Accumulated Depreciation. Enter information as presented and solve for the unknown in each account. (Hint: Recall the types of transactions that make each of the two accounts increase and decrease. You are solving for the cost of Property and Equipment sold and the Accumulated Depreciation on those assets.)
2. Based on your calculations in requirement 1, calculate the book value of assets sold during 2016. What is the difference between the sales price and the book value?
3. Prepare the journal entry for the sale of property and equipment during 2016. Describe the effect of this transaction on the financial statements. Compare the sales price and the book value in the journal entry, and compare this to the difference you calculated in requirement 2. Describe briefly.
4. Prepare a T-account for Property and Equipment, Net. Repeat requirement 1.

Transcribed Image Text:

Property and equipment Accumulated depreciation 12/31/16 $23,530 (18,395) 12/31/15 $21,350 (17,530)