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. 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. How much depreciation expense was recorded for equipment by Rosetta Company during 2012? What was the cost of equipment purchased during the year? 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.

Depreciation expenses recorded during 2012 : $8,000

B.

So cost of equipment purchased during the year is $60,000

C.

Profit earned on sale of equipment = 18500 - (35000-9000) = $7,500

In the statement of Cash Flows:

1. Profit on sale of equipment of $7,500 and Depreciation during 2012 $8,000 sahall be added to Net Income.

2. Purchase of new equipment $60,000 shall be deducted and sale of equipment of $18,500 shall be added to other cash flows.

Accumulated Depreciation $ 01-01-12 30000 Less: Accumulated depreciation on equipment sold: 26000 4000 31-12-12 12000 Depreiation during the year 8000

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