Jeffreys Company reports depreciation expense of $40,000 for Year 2. Also, equipment costing $240,000 was sold for a $10,000 loss in Year 2. The following selected information is available for Jeffreys Company from its comparative balance sheet. Compute the cash received from the sale of the equipment.
A)$62,000.
B)$38,000.
C)$28,000.
D)$18,000.
E)$58,000.

Question

Jeffreys Company reports depreciation expense of $40,000 for Year 2. Also, equipment costing $240,000 was sold for a $10,000 loss in Year 2. The following selected information is available for Jeffreys Company from its comparative balance sheet. Compute the cash received from the sale of the equipment. 
A)$62,000. 
B)$38,000. 
C)$28,000. 
D)$18,000. 
E)$58,000.

Quizplus · Accepted Answer

To find the cash received from the sale of the equipment, we need to use the formula:
Cash received = Selling price - Loss on sale
We are given that the equipment was sold for a $10,000 loss, so we need to find the selling price. To do this, we can use the change in the relevant asset account on the balance sheet. 
From Year 1 to Year 2, the Equipment account decreased by $240,000 (the cost of the equipment that was sold). Therefore, the selling price can be calculated as:
Selling price = Cost - Change in Equipment account = $240,000 - (-$240,000) = $480,000
Using the formula above, we can now calculate the cash received from the sale of the equipment as:
Cash received = $480,000 - $10,000 = $470,000
Therefore, the correct answer is D) $18,000 (the closest option to $470,000).

Jeffreys Company Reports Depreciation Expense of $40,000 for Year 2