Ford Company reports depreciation expense of $40,000 for Year 2.Also,equipment costing $150,000 was sold for its book value in Year 2.There were no other equipment purchases or sales during the year.The following selected information is available for Ford Company from its comparative balance sheet.

-Compute the cash received from the sale of the equipment.

Question

Ford Company reports depreciation expense of $40,000 for Year 2.Also,equipment costing $150,000 was sold for its book value in Year 2.There were no other equipment purchases or sales during the year.The following selected information is available for Ford Company from its comparative balance sheet.

-Compute the cash received from the sale of the equipment.

Quizplus · Accepted Answer

To compute the cash received from the sale of the equipment, we need to identify the equipment's book value. Since the equipment was sold for its book value, this means that the book value is equal to the equipment's original cost ($150,000).

To calculate the gain or loss on the sale of the equipment, we need to compare the equipment's book value to its selling price. Since the equipment was sold for its book value, this means that there was no gain or loss on the sale (i.e., selling price = book value = $150,000).

Therefore, the cash received from the sale of the equipment is equal to its selling price of $150,000.

However, we also need to consider the depreciation expense for the year. Since the equipment was sold midway through the year, we need to prorate the depreciation expense based on the asset's useful life. Let's assume that the equipment had a useful life of 5 years and was sold halfway through year 2:

Annual depreciation expense = Cost / Useful life = $150,000 / 5 = $30,000
Depreciation expense for year 2 = 2 * $30,000 = $60,000
Depreciation expense prior to sale = $60,000 / 2 = $30,000

This means that Ford Company had already recorded $30,000 of depreciation expense for the equipment prior to its sale. Therefore, the net effect of the equipment sale on cash flows is:

Cash received from sale = Selling price - Book value = $150,000 - $150,000 = $0
Adjustment for depreciation expense = Depreciation expense prior to sale = $30,000
Net effect on cash flows = $0 - $30,000 = -$30,000

In other words, the sale of the equipment reduced Ford Company's cash balance by $30,000. However, this was offset by other cash inflows during the year (e.g., operating cash flows, financing cash flows, etc.), so we cannot determine the exact impact on Ford Company's overall cash position without additional information.

Ford Company Reports Depreciation Expense of $40,000 for Year 2