eBook

Show Me How Video

Question Content Area

Disposal of Fixed Asset

Equipment acquired on January 3, 20Y1, at a cost of $535,000, has an estimated useful life of 13 years and an estimated residual value of $85,600.

a. What was the annual amount of depreciation for the years 20Y1, 20Y2, and 20Y3, using the straight-line method of depreciation? Round annual depreciation to the nearest dollar and use this amount in your follow-on calculations.

	Depreciation expense
20Y1	$fill in the blank 1
20Y2	$fill in the blank 2
20Y3	$fill in the blank 3

b. What was the book value of the equipment on January 1, 20Y4? $fill in the blank 4

For decreases in accounts or outflows of cash, enter your answers as negative numbers. If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank.

c. Assuming that the equipment was sold on January 2, 20Y4, for $160,500, illustrate the effects on the accounts and financial statements of the sale.

Financial Statement Effects

		Balance Sheet
	Assets	=	Liabilities	+	Stockholders' Equity
Accounts receivableAccumulated depreciation-equipmentCashNo effectCash	+	Accumulated depreciation-equipmentEquipmentSuppliesNo effectEquipment	-	Accumulated depreciation-equipmentCashDepreciation expenseNo effectAccumulated depreciation-equipment	=	Accounts payableCashRetained earningsNo effectNo effect	+	Accounts payableCapital stockRetained earningsNo effectRetained earnings
Jan. 2.	fill in the blank 10		fill in the blank 11		fill in the blank 12		fill in the blank 13		fill in the blank 14
	Statement of Cash Flows		Income Statement
	FinancingInvestingOperatingNo effectOperating	fill in the blank 16		Gain on disposal of fixed assetsLoss on disposal of fixed assetsSalesNo effectLoss on disposal of fixed assets	fill in the blank 18

d. Assuming that the equipment was sold on January 2, 20Y4, for $695,500 instead of $160,500, illustrate the effects on the accounts and financial statements of the sale.

Financial Statement Effects

		Balance Sheet
	Assets	=	Liabilities	+	Stockholders' Equity
Accounts payableAccounts receivableCashNo effectCash	+	Accounts payableEquipmentSuppliesNo effectEquipment	-	Accounts payableAccumulated depreciation-equipmentDepreciation expenseNo effectAccumulated depreciation-equipment	=	Accounts payableCapital stockCashNo effectNo effect	+	Capital stockRetained earningsSalesNo effectRetained earnings
Jan. 2.	fill in the blank 24		fill in the blank 25		fill in the blank 26		fill in the blank 27		fill in the blank 28
	Statement of Cash Flows		Income Statement
	FinancingInvestingOperatingNo effectInvesting	fill in the blank 30		EquipmentLoss on disposal of fixed assetsGain on disposal of fixed assetsNo effectGain on disposal of fixed assets	fill in the blank 32