1-1. Net income for Harris-Smith Company for 2017 includes the effect of the fol
ID: 2591411 • Letter: 1
Question
1-1. Net income for Harris-Smith Company for 2017 includes the effect of the following transactions involving the sale of fixed assets:
Sales
Asset
Price
Cost
Gain/Loss
X
$ 20,000
$ 80,000
$ 10,000
Y
25,000
$ 150,000
$ (18,000)
Purchases of fixed assets during 2017 amounted to $340,000. The Accumulated Depreciation account increased $40,000 during 2017.
1-1a. Show labelled calculations to determine depreciation expense for 2017.
1-1b. Identify where all relevant information here would be reported in the SCF (indirect method).
Sales
Asset
Price
Cost
Gain/Loss
X
$ 20,000
$ 80,000
$ 10,000
Y
25,000
$ 150,000
$ (18,000)
Explanation / Answer
1-1a.
Book value of Asset X = Sale price of assets - gain on sale = 20000 - 10000 = 10000
Accumulated depreciation on Assets X = Cost price - Book Value = 80000 - 10000 = 70000
Book value of Asset Y = Sale price of assets + Loss on sale = 25000 + 18000 = 43000
Accumulated depreciation on Assets Y = Cost price - Book Value = 150000 - 43000 = 107000
Total accumulated depreciation on assets which were sold during the year = 70000 + 107000 = 177000
Depreciation expense for 2017 = 177000 + 40000 = 217000
1-1b.
Cash flow from operating activities:
Depreciation expense = 217000
Cash flow from investing activities:
Sale of Asset X = 20000
Sale of Asset Y = 25000
Purchase of Fixed assets = (340000)
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