Accounting for Sale of Long Lived Asset Book Value BV - Original Cost C - Accumulated Depreciation AD Proceeds from sale S-Book value BV on date of sale - Gain Gor Loss (L) on sale Journal Entry (when long lived asset sold at a gain) SS Cash Dr Accu. Depreciation Dr SAD Long Lived Asset Gain on sale Cr SC at SG Joumal Entry (when long lived asset sold at a loss) Cash Dr $s Accumulated Depreciation Dr SAD Loss on sale Dr SL Long Lived Asset Cr SC The gain on sale increases net income while the loss on sale decreases net income. Like any other joumal entry, the above journal entry is also posted to T-Accounts. Long Lived Asset T-Account Beginning Balance Original cost of Original Cost of Long lived assets long lived assets sold Purchased during the during the period period Ending Balance Accumulated Depreciation T-Account Beginning Balance Accumulated Depreciation Expense Depreciation on for the period Long lived assets sold during the period Ending Balance Cash Flow Statement Format Operating Activities Net Income Add Depreciation Expense Add Decreases in Each Non-Cash Current Asset Separately Subtract Increases in Each Non-Cash Current Asset Separately Add Increases in Each Current Liability Separately Subtract Decreases in Each Current Liability Separately Add Loss due to Sale of Long Lived Asset Subtract Gain due to Sale of Long Lived Asset 1 Cash Flow from Operating Activities (2) Investing Activities Subtract Cost of Long Lived Assets Acquired Add Proceeds from Sale of Long Lived Asset Subtract Investments made in other Companies Add Disinvestments in other Companies Cash Flow from Investing Activities Einancing Activities Add Proceeds from issue of Shares Add Proceeds from issue of Debt Subtract money used in Retirement of Debt Shares Subtract Dividends Paid Cash Flow from Financing Activities (c) Net Change in Cash (a) (b) + (c) The net change in cash should be equal to the difference in cash balances shown on the two balance sheets corresponding to the beginning and the end of the period (this is a check). You would demonstrate this by adding beginning cash to the Net Change in Cash and showing that the result was equal to ending cash balance on the balance sheet Important Relationships Beginning Retained Earnings + Net Income of the period - Dividends for the period = Ending Retained Earnings Beginning PPE + Cost of PPE purchased during the period - Original acquisition cost of PPE sold during the period = Ending PPE Beginning A.D. + Depreciation Expense for the period - A.D. on PPE sold during the period = Ending A.D. Original acquisition cost of PPE sold during the period - A.D. on PPE sold during the period = Book value of PPE sold during the period Proceeds from sale of PPE during the period - Book value of PPE sold during the period = Gain or loss from sale of PPE during the period. Cash Flow Statement with Long Lived Asset Sale: Example 1 Comparative Balance Sheets and some additional information for Green Company are given below. All figures in the table below are in millions of dollars. Green reports on a fiscal year ending December 31" Green Company Balance 2000 2001 Shant as of Dec 31 Assets Cash 15 25 Accounts Receivable 60 90 Allowance for Bad Debts (20) (25) Merchandize Inventories 150 135 Land 210 230 Plant and Equipment 410 415 Accumulated Depreciation (150) (170) Total Assets 675 700 Liabilities and Equity Accounts Payable 25 20 Taxes Payable 5 15 Long term Debt 270 255 290 330 Contributed Capital Retained Earnings 85 80 Total Liabilities and Equity 675 700 Additional Information 1. Green's net income for calendar year 2001 was S60 million. 2. During 2001, Green sold plant and equipment with an original acquisition cost of $40 million and accumulated depreciation of $15 million for $30 million cash. Cash Flow Statement with Long Lived Asset Sale: Example 2 Comparative Balance Sheets and some additional information for Brown Company are given below. All figures in the table below are in millions of dollars. Brown reports on a fiscal year ending December 31". 2000 Brown Company Balance Sheet as of Dec 31 2001 Assets Cash 30 55 Accounts Receivable 60 50 Allowance for Bad Debts (10) (5) Merchandize Inventories 150 160 400 440 Property, Plant and Equipment Accumulated Depreciation (150) (100) Total Assets 480 600 Liabilities and Equity Accounts Payable 50 40 Long term Debt 250 360 Contributed Capital 100 140 Retained Earnings 80 60 Total Liabilities and Equity 480 600 Additional Information 1. Brown declared and paid dividends of $5 million in 2001. 2. During 2001, Brown sold plant and equipment for S25 million at a gain of $10 million. Brown had bought this plant and equipment in 1996 at an original acquisition cost of $100 million. At the time of purchase in 1996 it was estimated that the plant and equipment would have a useful life of 10 years and a salvage value of $5 million at the end of its useful life. Selected financial statement information and additional data for Johnston Enterprises is presented below. Balance Sheet Data December 31, 2013 $119,000 320,000 (14,000) 340,000 1,122,000 (442,000) $1.445.000 December 31, 2014 $143,000 240,000 (12,000) 391,000 1,261,000 (476,000) $1.547.000 Cash Accounts Receivable Less: Allowance for Bad Debts Inventory Property, plant, and Equipment Less: Accumulated Depreciation Total Assets Accounts Payable (merchandise suppliers) Salaries Payable Income Taxes Payable Bank Loan Common Stock Retained Earnings Total Liabilities & Stockholders' Equity $102,000 68,000 77,000 391,000 467,000 340,000 $1.445.000 $187,000 51,000 85,000 350,000 510,000 364,000 $1.547.000 Income Statement Data for Calendar Year 2014 1,615,000 (781.000) 834,000 Sales Revenue Cost of Goods Sold Gross Profit Expenses: Depreciation Expense Salaries Expense Bad Debt Expense Interest Expense Loss on Sale of Equipment Income Before Taxes Income Tax Expense Net Income (153,000) (380,000) (11,000) (34,000) 112.000) 244,000 198.000) $146.000 Additional Information: During the calendar year 2014 Johnston purchased new equipment at a cost of $272,000. Based on the information provided on the previous page, provide your answers to the questions below in the space provided in the table below. Item $ Amount (a) Cash Collected from Customers in 2014 (b) Cash paid to merchandize suppliers in 2014 (c) Salaries paid in 2014 (d) Interest paid in 2014 (e) Taxes paid in 2014 (f) Net Cash from the Above i.e. (a) through (e) (8) 2014 Cash Flow from Operations (h) Cash from Sale of PPE in 2014 00) Dividends Paid in 2014 Also, prepare a cash flow statement for 2014 in proper format. Homework Assignment Due by 8 PM on Sunday September 20th on Canvas Comparative Balance Sheets and some additional information for Red Company are given below. All figures in the table below are in millions of dollars. Red reports on a fiscal year ending December 31" 2000 2001 Green Company Balance Sheat as of Der 31 Assets Cash 25 20 Accounts Receivable 45 90 Allowance for Bad Debts (15) (20) Merchandize Inventories 160 135 Land 200 225 420 420 Plant and Equipment Accumulated Depreciation (160) (170) Total Assets 675 700 Liabilities and Equity 30 20 Accounts Payable Taxes Payable 0 15 Long term Debt 265 255 Contributed Capital 290 330 Retained Earnings 90 80 Total Liabilities and Equity 675 700 Additional Information 1. Red's net income for calendar year 2001 was 550 million 2. During 2001, Red sold plant and equipment with an original acquisition cost of $50 million at a loss of $10 million 3. Red's depreciation expense for 2001 was 525 million Prepare in good form Red's Cash Flow Statement for 2001 Accounting for Sale of Long Lived Asset Book Value BV - Original Cost C - Accumulated Depreciation AD Proceeds from sale S-Book value BV on date of sale - Gain Gor Loss (L) on sale Journal Entry (when long lived asset sold at a gain) SS Cash Dr Accu. Depreciation Dr SAD Long Lived Asset Gain on sale Cr SC at SG Joumal Entry (when long lived asset sold at a loss) Cash Dr $s Accumulated Depreciation Dr SAD Loss on sale Dr SL Long Lived Asset Cr SC The gain on sale increases net income while the loss on sale decreases net income. Like any other joumal entry, the above journal entry is also posted to T-Accounts. Long Lived Asset T-Account Beginning Balance Original cost of Original Cost of Long lived assets long lived assets sold Purchased during the during the period period Ending Balance Accumulated Depreciation T-Account Beginning Balance Accumulated Depreciation Expense Depreciation on for the period Long lived assets sold during the period Ending Balance Cash Flow Statement Format Operating Activities Net Income Add Depreciation Expense Add Decreases in Each Non-Cash Current Asset Separately Subtract Increases in Each Non-Cash Current Asset Separately Add Increases in Each Current Liability Separately Subtract Decreases in Each Current Liability Separately Add Loss due to Sale of Long Lived Asset Subtract Gain due to Sale of Long Lived Asset 1 Cash Flow from Operating Activities (2) Investing Activities Subtract Cost of Long Lived Assets Acquired Add Proceeds from Sale of Long Lived Asset Subtract Investments made in other Companies Add Disinvestments in other Companies Cash Flow from Investing Activities Einancing Activities Add Proceeds from issue of Shares Add Proceeds from issue of Debt Subtract money used in Retirement of Debt Shares Subtract Dividends Paid Cash Flow from Financing Activities (c) Net Change in Cash (a) (b) + (c) The net change in cash should be equal to the difference in cash balances shown on the two balance sheets corresponding to the beginning and the end of the period (this is a check). You would demonstrate this by adding beginning cash to the Net Change in Cash and showing that the result was equal to ending cash balance on the balance sheet Important Relationships Beginning Retained Earnings + Net Income of the period - Dividends for the period = Ending Retained Earnings Beginning PPE + Cost of PPE purchased during the period - Original acquisition cost of PPE sold during the period = Ending PPE Beginning A.D. + Depreciation Expense for the period - A.D. on PPE sold during the period = Ending A.D. Original acquisition cost of PPE sold during the period - A.D. on PPE sold during the period = Book value of PPE sold during the period Proceeds from sale of PPE during the period - Book value of PPE sold during the period = Gain or loss from sale of PPE during the period. Cash Flow Statement with Long Lived Asset Sale: Example 1 Comparative Balance Sheets and some additional information for Green Company are given below. All figures in the table below are in millions of dollars. Green reports on a fiscal year ending December 31" Green Company Balance 2000 2001 Shant as of Dec 31 Assets Cash 15 25 Accounts Receivable 60 90 Allowance for Bad Debts (20) (25) Merchandize Inventories 150 135 Land 210 230 Plant and Equipment 410 415 Accumulated Depreciation (150) (170) Total Assets 675 700 Liabilities and Equity Accounts Payable 25 20 Taxes Payable 5 15 Long term Debt 270 255 290 330 Contributed Capital Retained Earnings 85 80 Total Liabilities and Equity 675 700 Additional Information 1. Green's net income for calendar year 2001 was S60 million. 2. During 2001, Green sold plant and equipment with an original acquisition cost of $40 million and accumulated depreciation of $15 million for $30 million cash. Cash Flow Statement with Long Lived Asset Sale: Example 2 Comparative Balance Sheets and some additional information for Brown Company are given below. All figures in the table below are in millions of dollars. Brown reports on a fiscal year ending December 31". 2000 Brown Company Balance Sheet as of Dec 31 2001 Assets Cash 30 55 Accounts Receivable 60 50 Allowance for Bad Debts (10) (5) Merchandize Inventories 150 160 400 440 Property, Plant and Equipment Accumulated Depreciation (150) (100) Total Assets 480 600 Liabilities and Equity Accounts Payable 50 40 Long term Debt 250 360 Contributed Capital 100 140 Retained Earnings 80 60 Total Liabilities and Equity 480 600 Additional Information 1. Brown declared and paid dividends of $5 million in 2001. 2. During 2001, Brown sold plant and equipment for S25 million at a gain of $10 million. Brown had bought this plant and equipment in 1996 at an original acquisition cost of $100 million. At the time of purchase in 1996 it was estimated that the plant and equipment would have a useful life of 10 years and a salvage value of $5 million at the end of its useful life. Selected financial statement information and additional data for Johnston Enterprises is presented below. Balance Sheet Data December 31, 2013 $119,000 320,000 (14,000) 340,000 1,122,000 (442,000) $1.445.000 December 31, 2014 $143,000 240,000 (12,000) 391,000 1,261,000 (476,000) $1.547.000 Cash Accounts Receivable Less: Allowance for Bad Debts Inventory Property, plant, and Equipment Less: Accumulated Depreciation Total Assets Accounts Payable (merchandise suppliers) Salaries Payable Income Taxes Payable Bank Loan Common Stock Retained Earnings Total Liabilities & Stockholders' Equity $102,000 68,000 77,000 391,000 467,000 340,000 $1.445.000 $187,000 51,000 85,000 350,000 510,000 364,000 $1.547.000 Income Statement Data for Calendar Year 2014 1,615,000 (781.000) 834,000 Sales Revenue Cost of Goods Sold Gross Profit Expenses: Depreciation Expense Salaries Expense Bad Debt Expense Interest Expense Loss on Sale of Equipment Income Before Taxes Income Tax Expense Net Income (153,000) (380,000) (11,000) (34,000) 112.000) 244,000 198.000) $146.000 Additional Information: During the calendar year 2014 Johnston purchased new equipment at a cost of $272,000. Based on the information provided on the previous page, provide your answers to the questions below in the space provided in the table below. Item $ Amount (a) Cash Collected from Customers in 2014 (b) Cash paid to merchandize suppliers in 2014 (c) Salaries paid in 2014 (d) Interest paid in 2014 (e) Taxes paid in 2014 (f) Net Cash from the Above i.e. (a) through (e) (8) 2014 Cash Flow from Operations (h) Cash from Sale of PPE in 2014 00) Dividends Paid in 2014 Also, prepare a cash flow statement for 2014 in proper format. Homework Assignment Due by 8 PM on Sunday September 20th on Canvas Comparative Balance Sheets and some additional information for Red Company are given below. All figures in the table below are in millions of dollars. Red reports on a fiscal year ending December 31" 2000 2001 Green Company Balance Sheat as of Der 31 Assets Cash 25 20 Accounts Receivable 45 90 Allowance for Bad Debts (15) (20) Merchandize Inventories 160 135 Land 200 225 420 420 Plant and Equipment Accumulated Depreciation (160) (170) Total Assets 675 700 Liabilities and Equity 30 20 Accounts Payable Taxes Payable 0 15 Long term Debt 265 255 Contributed Capital 290 330 Retained Earnings 90 80 Total Liabilities and Equity 675 700 Additional Information 1. Red's net income for calendar year 2001 was 550 million 2. During 2001, Red sold plant and equipment with an original acquisition cost of $50 million at a loss of $10 million 3. Red's depreciation expense for 2001 was 525 million Prepare in good form Red's Cash Flow Statement for 2001