Question

On January 1, Year 1, Bacco Company had a balance of $72,350 in its Delivery Equipment account. During Year 1, Bacco purchased delivery equipment that cost $22,100. The balance in the Delivery Equipment account on December 31, Year 1, was $69,400. The Year 1 income statement reported a gain from the sale of equipment for $5,000. On the date of sale, accumulated depreciation on the equipment sold amounted to $22,000.

a. Determine the original cost of the equipment that was sold during 2016.
b. Determine the amount of cash flow from the sale of delivery equipment that should be shown in the investing activities section of the 2016 statement of cash flows.

Answer 1

Answer:

A.

Jan 1 balance 72,350

Add year 1 purchases $22,100

Total $94,450

Deduct the closing balance $69,400

Difference = sold equipment at Net Book Value = $25,050

Add accumulated depreciation to date = $22,000

Cost of equipment sold = $47,050.

B.

Cash flow from investing activities.

Cash received from sale of equipment (the Net book value + Gain in sales) = $30,050

Cash invested in purchase of new equipment -$22,100

Net cash flow from investing activities $7,950

Answer 2

• The original cost of the equipment that was sold during 2016 is $47,050

• The amount of cash flow from the sale of delivery equipment that should be shown in the investing activities section of the 2016 statement of cash flows is  $7,950

A.

First, determine the Net Book Value of the equipment sold.

= Balance  + year 1 purchases - closing balance

= 72,350 + $22,100 - $69,400

= $25,050

Then,

Cost of equipment sold

= Equipment sold at Net Book Value + Accumulated depreciation to date

= $25,050 + $22,000

= $47,050

B.

Cash flow from investing activities.

= Cash received from sale of equipment (the Net book value + Gain in sales) - Cash invested in purchase of new equipment

= $30,050 - $22,100

= $7,950

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