Question

Equipment acquired on January 9, 20Y3, at a cost of 5560,000, has an estimated useful life of 20 years has an estimated residual value of $40,000, and is depreciated by the straight-line method. a. What was the book value of the equipment at the end of the fifth year, December 31, 2017? For decreases in accounts or outflows of cash, enter your answers as negative numbers. If no account or activity is affected, select "No effect from the dropdown and leave the corresponding number entry box blank. b1. Assurning that the equipment was sold on July 1, 20Y8, for $400,000, illustrate the effects on the accounts and financial statement of depreciation for the six months until the sale date. Balance Sheet Statement of Cash Flows Assets Liabilities + Stockholders' Equity Income Statement July 1. Statement of Cash Flows Income Statement b2. Assuming that the equipment was sold on July 1, 20Y8, for $400,000, illustrate the effects on the accounts and financial statement of the sale of the equipment. Balance Sheet Income Statement of Cash Flows Assets Liabilities Stockholders' Equity Statement July 1. Statement of Cash Flows Income Statement

Answer 1

a) Depreciation expense= (Original cost-Residual value)/Estimated useful life

= ($560000-40000)/20= $26000

Accumulated depreciation at the end of the fifth year, December 31, 20Y7= $26000*5= $130000

Book value at the end of the fifth year= Original cost-Accumulated depreciation at the end of the fifth year, December 31, 20Y7= $560000-130000= $430000

b-1)

Statement of Cash Flows	Balance Sheet									Income Statement
	Assets				=	Liabilities	+	Stockholders' equity
	-	Accumulated depreciation	+	No effect	=	No effect	+	Retained earnings
July 1		-13000	+	0	=	0	+	-13000
	Statement of Cash Flows							Income Statement
No effect	$0							Depreciation expense		-13000

Depreciation from December 31, 20Y7 to July 1, 20Y8= ($560000-40000)/20*6/12= $13000

December 31, 20Y7 to July 1, 20Y8= 6 months

2)

Statement of Cash Flows	Balance Sheet										Income Statement
	Assets					=	Liabilities	+	Stockholders' equity
	Cash	+	Equipment	-	Accumulated depreciation	=	No effect	+	Retained earnings
July 1	$400000		-560000		143000	=	0		-17000
	Statement of Cash Flows								Income Statement
Investing activity	400000								Loss on sale of equipment		-17000

Accumulated depreciation at the time of sale= $130000+13000= $143000

Book value at the time of sale= $560000-143000= $417000

Loss on sale of equipment= Book value at the time of sale-Sales price= $417000-400000= $17000