Question

Mercury Company reports depreciation expense of $49,000 for Year 2. Also, equipment costing $168,000 was sold for its book value in Year 2. There were no other equipment purchases or sales during the year. The following selected information is available for Mercury Company from its comparative balance sheet. Compute the cash received from the sale of the equipment. At December 31 Year 2 Year 1 Equipment $ 655,000 $ 823,000 Accumulated Depreciation-Equipment 464,000 545,000 Multiple Choice $49,000. $87,000. $38,000. $81,000. $40,500.

Answer 1

The cash received from sale is $38000

Step-by-step explanation:

We first need to calculate the book value of the equipment that is sold.

Book value = Cost - Accumulated depreciation

The accumulated depreciation on the equipment sold can be calculated by calculating the change in overall accumulated depreciation. Using the following equation to calculate the closing balance of accumulated depreciation, we can calculate the accumulated depreciation for the equipment that is sold.

Closing balance = Opening balance + Depreciation expense for the year - Accumulated depreciation on the asset disposed

Let Accumulated depreciation on the asset disposed be x.

464000 = 545000 + 49000 - x

x = 594000 - 464000

x = 130000

Thus, the book value of the asset sold was,

Book value = 168000 - 130000 = $38000

As the asset is sold for its book value, the cash received from sale is also $38000