Question

The following selected information is from Ellerby Company’s comparative balance sheets.

At December 31 2017 2016

Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(132,000 \) 184,500

Accumulated depreciation—Furniture . . . . . . (88,700) (110,700)

The income statement reports depreciation expense for the year of \(18,000. Also, furniture costing \)52,500 was sold for its book value. Compute the cash received from the sale of furniture.

Short answer

The cash received on the sale of the asset is computed as $12,500

Step-by-step solution

Meaning of Fixed Assets

Fixed assets refer to those tangible assets of a business having a long life that help the business produce goods. Examples of fixed assets of the business are furniture, building, machinery, etc.

Computation of Cash received from sale of furniture

$\begin{array}{rcl}\mathbf{Cash}\mathbf{}\mathbf{Received}& \mathbf{=}& \mathbf{Cost}\mathbf{-}\mathbf{Accumulated}\mathbf{}\mathbf{Depreciation}\\ & \mathbf{=}& \mathbf{52}\mathbf{,}\mathbf{500}\mathbf{-}\mathbf{40}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{500}\end{array}$

Working note:

Computation of accumulated depreciation on sold asset

$\begin{array}{rcl}\mathbf{Accumulated}\mathbf{}\mathbf{depreciation}\mathbf{}\mathbf{on}\mathbf{}\mathbf{sold}\mathbf{}\mathbf{asset}& \mathbf{=}& \mathbf{Beginning}\mathbf{}\mathbf{balance}\mathbf{+}\mathbf{Current}\mathbf{}\mathbf{year}\mathbf{}\mathbf{depriciation}\mathbf{-}\mathbf{Ending}\mathbf{}\mathbf{Balance}\\ & \mathbf{=}& \mathbf{110}\mathbf{,}\mathbf{700}\mathbf{+}\mathbf{18}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{88}\mathbf{,}\mathbf{700}\\ & \mathbf{=}& \mathbf{\$}\mathbf{40}\mathbf{,}\mathbf{000}\end{array}$