The following three accounts appear in the general ledger of Herrick Corp. during 2020. Equipment Date Debit Credit Balance Jan. 1 Balance 161,200 July 31 Purchase of equipment 68,100 229,300 Sept. 2 Cost of equipment constructed 54,600 283,900 Nov. 10 Cost of equipment sold 49,100 234,800 Accumulated Depreciation—Equipment Date Debit Credit Balance Jan. 1 Balance 70,700 Nov. 10 Accumulated depreciation on equipment sold 31,200 39,500 Dec. 31 Depreciation for year 24,200 63,700 Retained Earnings Date Debit Credit Balance Jan. 1 Balance 104,200 Aug. 23 Dividends (cash) 15,800 88,400 Dec. 31 Net income 66,700 155,100 From the postings in the accounts, indicate how the information is reported on a statement of cash flows using the indirect method. The loss on disposal of plant assets was $4,900. (Hint: Cost of equipment constructed is reported in the investing activities section as a decrease in cash of $54,600.)
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The following three accounts appear in the general ledger of Herrick Corp. during 2020.
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Equipment
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Date
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Debit
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Credit
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Balance
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| Jan. 1 | Balance | 161,200 | ||||||
| July 31 | Purchase of equipment | 68,100 | 229,300 | |||||
| Sept. 2 | Cost of equipment constructed | 54,600 | 283,900 | |||||
| Nov. 10 | Cost of equipment sold | 49,100 | 234,800 | |||||
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Date
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Debit
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Credit
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Balance
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| Jan. 1 | Balance | 70,700 | ||||||
| Nov. 10 | Accumulated depreciation on equipment sold | 31,200 | 39,500 | |||||
| Dec. 31 | Depreciation for year | 24,200 | 63,700 | |||||
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Date
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Debit
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Credit
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Balance
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| Jan. 1 | Balance | 104,200 | ||||||
| Aug. 23 | Dividends (cash) | 15,800 | 88,400 | |||||
| Dec. 31 | Net income | 66,700 | 155,100 |
From the postings in the accounts, indicate how the information is reported on a statement of
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