Sale of an AssetEquipment acquired on January 9, 20Y3, at a cost of $615,000, has an estimated useful life of 17 years, an estimated residual value of $123,000, and is depreciated by the straight-line method.a. What was the book value of the equipment at the end of the fifth year, December 31, 20Y7? Round your interim calculations and final answer to the nearest dollar.$fill in the blank 1For decreases in accounts or outflows of cash, enter your answers as negative numbers. Round annual depreciation to the nearest dollar and use this amount in your follow-on calculations. If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank.b1. Assuming that the equipment was sold on July 1, 20Y8, for $184,500, illustrate the effects on the accounts and financial statement of depreciation for the six months until the sale date. ### Understanding the Impact of Depreciation and Disposal of Equipment on Financial Statements#### 1. Depreciation of Equipment**Date: July 1****Balance Sheet Impact:**- **Assets:** - **Accumulated Depreciation - Equipment:** - Reduction in Asset value (✓)- **Liabilities:** - No effect (✓)- **Stockholders' Equity:** - Retained Earnings: Reduction (✓)**Statement of Cash Flows Impact:**- **No effect** (✓)**Income Statement Impact:**- **Depreciation Expense:** Recognized (✓)In the depreciable period, accumulated depreciation is recognized and recorded, which reduces the value of equipment on the balance sheet and affects retained earnings and depreciation expense is recognized on the income statement.#### 2. Sale of Equipment**Assumption:** The equipment was sold on July 1, 20Y8, for $184,500.**Balance Sheet Impact:**- **Assets:** - **Cash:** Increase (from sale proceeds) (✓) - **Equipment:** Decrease (equipment disposed) (✓) - **Accumulated Depreciation - Equipment:** Decrease (related to disposed equipment) (✓)- **Liabilities:** - No effect (✓)- **Stockholders' Equity:** - Retained Earnings: Impact depending on the gain or loss on sale (✓)**Statement of Cash Flows Impact:**- **Investing Activities:** - Increase (cash received from sale) (✓)**Income Statement Impact:**- **Loss on disposal of fixed assets:** Recognized if applicable (✓)When the equipment is sold, the proceeds from the sale are reflected in the cash assets, any accumulated depreciation associated with the equipment is removed, and the sold equipment is deducted from the assets. This can result in a loss or gain, which is reflected in the income statement and affects retained earnings.### FeedbackUse the **Check My Work** feature to verify the entries and ensure the impacts are correctly reflected across the financial statements.This guide offers a detailed explanation of the financial statement impact of both the depreciation and the subsequent sale of equipment.

Straight Line Depreciation Expense = (Cost - Residual Value)/ Useful Life Book Value = Cost -…

Answered: Equipment acquired on January 9, 20Y3,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Sale of an Asset

Equipment acquired on January 9, 20Y3, at a cost of $615,000, has an estimated useful life of 17 years, an estimated residual value of $123,000, and is depreciated by the straight-line method.

a. What was the book value of the equipment at the end of the fifth year, December 31, 20Y7? Round your interim calculations and final answer to the nearest dollar.
$fill in the blank 1

For decreases in accounts or outflows of cash, enter your answers as negative numbers. Round annual depreciation to the nearest dollar and use this amount in your follow-on calculations. If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank.

b1. Assuming that the equipment was sold on July 1, 20Y8, for $184,500, illustrate the effects on the accounts and financial statement of depreciation for the six months until the sale date.

### Understanding the Impact of Depreciation and Disposal of Equipment on Financial Statements

#### 1. Depreciation of Equipment
**Date: July 1**

**Balance Sheet Impact:**
- **Assets:**
- **Accumulated Depreciation - Equipment:**
- Reduction in Asset value (✓)
- **Liabilities:**
- No effect (✓)
- **Stockholders' Equity:**
- Retained Earnings: Reduction (✓)

**Statement of Cash Flows Impact:**
- **No effect** (✓)

**Income Statement Impact:**
- **Depreciation Expense:** Recognized (✓)

In the depreciable period, accumulated depreciation is recognized and recorded, which reduces the value of equipment on the balance sheet and affects retained earnings and depreciation expense is recognized on the income statement.

#### 2. Sale of Equipment
**Assumption:** The equipment was sold on July 1, 20Y8, for $184,500.

**Balance Sheet Impact:**
- **Assets:**
- **Cash:** Increase (from sale proceeds) (✓)
- **Equipment:** Decrease (equipment disposed) (✓)
- **Accumulated Depreciation - Equipment:** Decrease (related to disposed equipment) (✓)
- **Liabilities:**
- No effect (✓)
- **Stockholders' Equity:**
- Retained Earnings: Impact depending on the gain or loss on sale (✓)

**Statement of Cash Flows Impact:**
- **Investing Activities:**
- Increase (cash received from sale) (✓)

**Income Statement Impact:**
- **Loss on disposal of fixed assets:** Recognized if applicable (✓)

When the equipment is sold, the proceeds from the sale are reflected in the cash assets, any accumulated depreciation associated with the equipment is removed, and the sold equipment is deducted from the assets. This can result in a loss or gain, which is reflected in the income statement and affects retained earnings.

### Feedback
Use the **Check My Work** feature to verify the entries and ensure the impacts are correctly reflected across the financial statements.

This guide offers a detailed explanation of the financial statement impact of both the depreciation and the subsequent sale of equipment.

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