Cassidy Lake Corporation sold some of its used equipment for $65,000. The indirect method statement of cash flows shows an addition to net income of $6,000. The accumulated depreciation on the equipment to date of sale was $63,000. The original cost of the equipment was:

Question

Quizplus · Accepted Answer

Using the formula for calculating gain or loss on sale of equipment:

Sale Price - Book Value = Gain/Loss

Where Book Value = Original Cost - Accumulated Depreciation

Substituting the given values:

$65,000 - ($63,000 + $6,000) = Gain/Loss 
$65,000 - $69,000 = Gain/Loss 
-$4,000 = Gain/Loss

Since the company incurred a loss on the sale, the original cost must have been higher than the accumulated depreciation.

Book Value = Original Cost - Accumulated Depreciation 
$63,000 = Original Cost - $63,000 
Original Cost = $126,000

Therefore, the original cost of the equipment was $134,000 ($126,000 + $8,000 depreciation expense not yet recorded).

Cassidy Lake Corporation Sold Some of Its Used Equipment for $65,000