During 2017, Thomas Windows completed the following transactions:
-Purchased equipment for $41,000 cash that will be depreciated over a 10-year life
-Sold equipment that had an original cost of $46,000 and accumulated depreciation of $43,000 for $7,000 cash
The January 1, 2017 balance in the accumulated depreciation account was $134,000 and the December 31, 2017 balance was $145,000.How much depreciation expense will Thomas Windows report on the company's 2017 statement of cash flows if the indirect method is used?

Question

Quizplus · Accepted Answer

Depreciation expense can be calculated as the change in accumulated depreciation from the beginning to the end of the year, plus any depreciation expense related to assets purchased during the year. 
Change in accumulated depreciation = $145,000 - $134,000 = $11,000 
Depreciation expense for new equipment = $41,000 ÷ 10 years = $4,100 
Total depreciation expense = $11,000 + $4,100 = $15,100 
However, because we are using the indirect method, we need to add back the depreciation expense that was subtracted in the calculation of net income. In this case, we know that net income will be lower by $3,000 ($46,000 - $43,000 - $7,000) due to the sale of equipment. Therefore, we need to add back the depreciation expense that was associated with the sale, which would be: 
Depreciation expense for sold equipment = ($46,000 - $43,000) ÷ 10 years = $300 
Adjusted depreciation expense = $15,100 + $300 = $15,400 
Finally, we need to deduct any increase in the accumulated depreciation from current assets. In this case, there was a $11,000 increase in accumulated depreciation, which means we need to deduct $11,000 from current assets. 
Depreciation expense reported on statement of cash flows = $15,400 - $11,000 = $4,400 per choice B.

During 2017, Thomas Windows Completed the Following Transactions