Question

The following is an Equipment account and its associated Accumulated Depreciation account: Equipment Accumulated Depreciation Beg. balance 49,000 Machine A 8,100 Related to Mach. A 6,300 Beg. balance 29,000 Machine C 25,000 Machine B 5,200 Related to Mach. B 4,600 Depreciation 12,000 End. balance 60,700 End. balance 30,100 Additional information:
Machine A was sold at a gain of $900.
Machine B was sold for its scrap value of $200.
Machine C was acquired during the year.
Required:
Analyze the two accounts and show in ournal entry form, the enteried that would be made in preparation of the statement of the cash flows to reflect all the changes listed in the accounts,

Answer 1

Answer:

Explanation:

Generally when a company makes a sale of its used assets like equipment, machinery, land etc, it computes the gain or loss on sale by reducing the current book value of the asset from the sale price. As we all know, Current book value of an asset is calculated by reducing the accumulated depreciation related to that asset from its acquisition cost.

GAAP requires the companies to carry the Asset accounts at Cost minus any sale/scrap and the wear and tear of the asset (depreciation) is accumulated in another separate account. The Asset Account is reported at its Book Value (Cost-Accm. Depreciation) in the Balance Sheet every year. Gain or loss on such assets is calculated by reducing the book value from its sale price