The following information is given for Building Inc.:
$$\begin{array} { l r r }
\text { As of 12/31 } & { 2005 } & 2004 \
\text { PPE } & \$ 570,000 & \$ 530,000 \
\text { Accumulated depreciation } & 102,000 & 92,000 \
\text { Depreciation expense } & 30,000 & 32,000
\end{array}$$
During 2005 new assets were purchased for of $78,000, and plant assets were sold at a $10,000 loss.
-What was the book value of the sold assets?
A)$38,000
B)$18,000
C)$10,000
D)$8,000

Question

The following information is given for Building Inc.:
$$\begin{array} { l r r } 
\text { As of 12/31 } & { 2005 } & 2004 \
\text { PPE } & \$ 570,000 & \$ 530,000 \
\text { Accumulated depreciation } & 102,000 & 92,000 \
\text { Depreciation expense } & 30,000 & 32,000
\end{array}$$
During 2005 new assets were purchased for of $78,000, and plant assets were sold at a $10,000 loss. 
-What was the book value of the sold assets?
A)$38,000
B)$18,000
C)$10,000
D)$8,000

Quizplus · Accepted Answer

To find the book value of the sold assets, we first calculate the change in PPE (Property, Plant, and Equipment) and accumulated depreciation, then account for the purchase of new assets and the depreciation expense.1. Change in PPE: $570,000 (2005) - $530,000 (2004) = $40,000 increase.2. Change in accumulated depreciation: $102,000 (2005) - $92,000 (2004) = $10,000 increase.3. Given that new assets were purchased for $78,000, this would initially suggest an increase in PPE. However, the PPE only increased by $40,000, indicating that assets were disposed of.4. Depreciation expense for the year was $30,000, which increased the accumulated depreciation.To find the net effect of the asset disposal, we adjust the PPE increase by adding back the loss on sale and subtracting the cost of new assets:$$ \text{Net effect} = \$40,000 + \$10,000 - \$78,000 = -\$28,000 $$This net effect represents the decrease in PPE due to the disposal, after accounting for the purchase of new assets and the loss on sale. Since the book value of the assets sold includes both the decrease in PPE and the accumulated depreciation related to those assets, we add the increase in accumulated depreciation to the net effect:$$ \text{Book value of sold assets} = -\$28,000 + \$10,000 = -\$18,000 $$However, since we are looking for the absolute value of the book value of the sold assets, and considering the calculation approach should directly reflect the loss and the depreciation impact, the correct calculation should involve directly determining the book value based on the loss and the depreciation impact, which was not accurately reflected in the step-by-step explanation provided. The correct approach to find the book value of the sold assets involves considering the loss on sale as part of the asset's reduced book value and adjusting for depreciation to find the original book value before sale.Given the depreciation and the loss, the correct calculation should directly account for these in the context of the asset's disposal and its impact on the overall PPE and accumulated depreciation, leading to the identification of the book value of the assets that were sold. The mistake in the explanation was in the misinterpretation of how the net effect and the loss on sale relate to the book value of the disposed assets. The correct approach involves a more straightforward analysis of the asset sale, depreciation, and the loss to directly determine the book value of the sold assets.

The Following Information Is Given for Building Inc During 2005 New Assets Were Purchased for of $78,000, and l