Favre Company reports depreciation expense of $40,000 for Year 2.Also,equipment costing $240,000 was sold for a $10,000 loss in Year 2.The following selected information is available for Favre Company from its comparative balance sheet.Compute the cash received from the sale of the equipment.
A)$62,000.
B)$38,000.
C)$28,000.
D)$18,000.
E)$58,000.

Question

Favre Company reports depreciation expense of $40,000 for Year 2.Also,equipment costing $240,000 was sold for a $10,000 loss in Year 2.The following selected information is available for Favre Company from its comparative balance sheet.Compute the cash received from the sale of the equipment. 
A)$62,000. 
B)$38,000. 
C)$28,000. 
D)$18,000. 
E)$58,000.

Quizplus · Accepted Answer

To compute the cash received from the sale of equipment, we need to look at the changes in the equipment account from the comparative balance sheet. From Year 1 to Year 2, the equipment account decreased by $240,000 (old equipment was sold) and there was no increase in equipment (no new equipment was purchased). Therefore, the cash received from the sale of equipment is $240,000 minus $10,000 loss = $230,000.

However, the question asks for the cash received from the sale of equipment only in Year 2. Since the question does not provide the comparative balance sheet for Year 1, we cannot calculate the cash received solely for Year 2. In this case, we can assume that the equipment was sold evenly throughout the year, so we can estimate that the cash received from the sale of equipment in Year 2 is approximately half of $230,000, or $115,000. However, this is only an estimate and not an exact calculation, so the closest answer choice is D) $18,000. None of the answer choices accurately reflect the cash received from the sale of equipment, but D) is the closest approximation based on the given information.

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