Big Springs Corporation sold some of its used equipment for $37,000. The indirect method statement of cash flows shows an addition to net income of $5,000. The accumulated depreciation on the equipment to date of sale was $36,000. The original cost of the equipment was:

Question

Quizplus · Accepted Answer

The original cost of the equipment can be calculated as follows:

Original cost - Accumulated depreciation = Book value

Book value + Sale proceeds = Cash received

Using these equations:

Let the original cost be X

X - $36,000 = $5,000 (given addition to net income) 
X = $41,000

$41,000 - $36,000 = $5,000 (book value)

$5,000 + $37,000 = $42,000 (cash received)

Therefore, the original cost of the equipment was $41,000.

Big Springs Corporation Sold Some of Its Used Equipment for $37,000