Question

The Capitals Company has provided you the following information pertaining to the year ending December 31, 2018: January 1, 2018 December 31, 2018 Equipment $ 575,000 $ 729,000 Accumulated depreciation $ 165,000 $ 120,500 Equipment costing $25,000 was acquired in exchange for common stock. Equipment with an original cost of $57,500 and a book value of $5,000 was scrapped. Equipment was purchased in exchange for cash. Equipment with a book value of $39,000 was sold resulting in a $14,000 gain. The accumulated depreciation at the time of the sale was $67,000. Required: Determine the cash paid for equipment purchases during 2018. Determine the depreciation expense for 2018.

Answer 1

Answer:

$223,000; $75,000

Explanation:

(a)

Balance:

= Equipment opening balance - Exchange for common stock - Scrapped equipment - Cost of equipment sale

= $575,000 - $25,000 - $5,000 - $39,000

= $506,000

Cash paid for equipment purchases:

= Equipment Ending Balance - Balance

= $729,000 - $506,000

= $223,000

(b)

Depreciation expense:

= Ending Balance - (Accumulated depreciation opening balance - Depreciation for scrap - Depreciation of equipment sale)

= 120,500 - ($165,000 - 52,500 - 67,000)

= 120,500 - 45,500

= $75,000