Rosetta Company had the following balances in its Equipment and Accumulated Depr

Question

Rosetta Company had the following balances in its Equipment and Accumulated Depreciation on Equipment accounts at the beginning and end of 2012.

January 1 Equipment $115,000, Accumulated Depreciation $30,000

December 31 Equipment $140,000, Accumulated depreciation $12,000

During 2012, Rosetta sold equipment for $18,500 that originally cost $35,000. The book value at the time of sale was $9,000. Net income for 2012 was $380,000.

A. How much depreciation expense was recorded for equipment by Rosetta Company during 2012?

B. What was the cost of equipment purchased during the year?

C. Show how the effects of these transactions would be reported by preparing the operating and investing activities sections of the statement of cash flows.

Explanation / Answer

A.

B.

C.

While calculating cash flow from operating activities, Depreciation for current year will add back to net income and profit on sale of equipment will deduct from net income.

In investing activities, total purchases of $43,500 will show as cash outflow and $18,500 will show as cash inflow.

Accumulated depreciation on December 31st        12,000 Add: Accumulated depreciation portion for sold assets        26,000 Less: Accumulated depreciation on January 1st      -30,000 Depreciation booked during the year          8,000

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