Question

Last year Ace charged $3,144,667 Depreciation on the Income Statement of Andrews. If Ace sold a fully depreciated piece of equipment at a loss, the effect on Andrews's financial statements would be (all other items remaining equal) _______.

Select: 1
O Decrease Net Cash from operations on the Cash Flow Statement
O Increase Net Cash from operations
O No impact on Net Cash from operations
O Just impact the Balance Sheet

Answer 1

Just impact the Balance Sheet

Step-by-step explanation:

I'm not sure how can you sell something at a loss when its value is $0. Did you pay someone to take the asset? Once the asset has been fully depreciated, its value is $0, the company cannot assign any more expenses to it, it cannot be worth -$anything.

It definitely will not have any impact on the income statement, nor cash flows, since obviously if you had sold the asset (worth $0) for $1 at least, you should report a gain.

I'm not sure exactly how this can happen, but if the company accepted a liability in exchange for someone taking the asset away. It is the only way you can sell something for a negative price. Since liabilities would increase, the accumulated depreciation should be reversed to balance the equation. So the balance sheet might be affected in a weird way.

Answer 2

Just impact the balance sheet

Step-by-step explanation:

The amount to be recorded in the statement of cash flow relating to the disposal is the actual cash collected,at any rate,the cash received would be an additional inflow in the year,hence it is an increase in cash flow.

The impact of the above transaction would neither increase nor decrease the cash flow from operations since disposal of non-current asset is an investing activity item and no depreciation is charged in the current year

The correct option is just impact impact the balance sheet by crediting equipment account and debiting accumulated depreciation as well as debiting loss on disposal