Chapter 7, Problem 7.73AP

(Learning Objectives 1, 4, 8: Analyze the effect of a plant asset addition and disposal; report plant asset transactions on the financial statements) At the end of 2017, Stretch Energy had total assets of $17.3 billion and total liabilities of $9.7 billion. Included among the assets were property, plant, and equipment with a cost of $4.9 billion and accumulated depreciation of $2.7 billion. Stretch Energy completed the following selected transactions during 2018: The company earned total revenues of $26 billion and incurred total expenses of $21.6 billion, which included depreciation of $1.6 billion. During the year Stretch Energy paid $2.1 billion for new property, plant, and equipment and sold old plant assets for $0.7 billion. The cost of the assets sold was $1.2 billion, and their accumulated depreciation was $0.8 billion.

Requirements

1. 1. Explain how to determine whether Stretch Energy had a gain or loss on the sale of old plant assets during the year. What was the amount of the gain or loss, if any?
2. 2. Show how Stretch Energy would report property, plant, and equipment on the balance sheet at December 31, 2018, after all the year’s activity. What was the book value of property, plant, and equipment?
3. 3. Show how Stretch Energy would report its operating activities and investing activities on its statement of cash flows for 2018. Ignore gains and losses.