Use the following information to answer Questions bellow:
At the beginning of fiscal 2019, a county government acquires equipment for $4,000,000. The equipment has an estimated life of 5 years, and straight-line depreciation is used, with no residual value, if appropriate. At the end of fiscal 2020 (two years later), the government disposes of the equipment for $1,800,000.
-If the equipment is reported in the general fund, how is its disposal reported in the fiscal 2020 CAFR?

Question

Quizplus · Accepted Answer

The disposal of the equipment in the general fund is reported as an other financing source for the $1,800,000 received from the sale. However, for government-wide reporting, the transaction is treated differently. The equipment's book value at the time of disposal (after two years of depreciation on a straight-line basis with no residual value over a 5-year life) would be $2,400,000 ($4,000,000 cost - $800,000 annual depreciation * 2 years). Since the equipment was sold for $1,800,000, this results in a $600,000 loss ($2,400,000 book value - $1,800,000 sale price) in the government-wide statement of activities.

Use the Following Information to Answer Questions Bellow