Ardie Aegis Company Partial Balance Sheet and Investing Section of Cash Flow Statement For the Year Ended December 31, 2018

**Balance Sheet** As of Dec 31, 2017 | Dec 31, 2018 Assets Current Assets: Cash and cash equivalents $17,000 | $20,000 Accounts Receivable, net $12,000 | $13,000 Inventory $6,000 | $7,500 Short-term investments $5,000 | $6,500 Property, Plant, and Equipment, at cost $16,000 | $11,000 Less: Accumulated Depreciation ($4,000) | ($5,000) Property, Plant, and Equipment, net $13,000 | $7,000 Total Assets $53,000 | $54,000

**Notes to Financial Statement** Components of Property, Plant, and Equipment As of Dec 31, 2017 | Dec 31, 2018 Land $1,000 | $1,000 Equipment $5,000 | $5,000 Buildings $0 | $5,000 Machinery $10,000 | $0 Total PPE, at cost $16,000 | $11,000

**Statement of Cash Flows** For the year ended in Dec 31, 2018 Cash flows from investing activities: Investment in property, plant, and equipment ($5,000) Proceeds from sale of property, plant, and equipment $7,000

**Additional Information** - The company recognizes depreciation expense on a straight-line basis over the estimated useful lives of the assets. - Estimated useful lives are 5 years for all PPEs except for land. - Estimated residual values of all PPEs except for land are zero. - Land is not depreciated as it has an indefinite useful life.

Required:

1. Determine the acquisition cost of buildings purchased for cash on January 1, 2018. This is the only PPE purchase that the company has made during 2018. Prepare the necessary journal entry to record the purchase of the building on January 1, 2018.

2. Determine the depreciation expense of the machinery as of June 30, 2018. Prepare the necessary journal entry to record depreciation expense for the machinery before recording the disposal of the machinery. The machinery was sold on June 30, 2018.

3. Determine if there was any gain or loss from the sale of the machinery. Prepare the necessary journal entry to record the sale of the machinery on June 30, 2018.

4. Determine the depreciation expense of equipment and buildings for 2018. Prepare the necessary journal entry to record the depreciation expense of equipment and buildings on December 31, 2018.

5. Estimate the remaining useful life of equipment as of December 31, 2018.

6. Suppose you are the manager of the company and want to increase net income and net cash flows for 2018 before the earnings announcement. On December 31, 2018, you have three options: - (i) selling land for $1,000 cash - (ii) selling buildings for $4,000 cash - (iii) lengthening the estimate of useful life of buildings Indicate the effect (direction) of each option on net income and net cash flows for

2018 below.

**Effects on Net Income and Net Cash Flows** Net Income | Net Cash Flows Example: + | N/A Option (i): Option (ii): Option (iii):

Thank you very much!