Question

Refer to the data in QS 12-11.

Furniture costing \(55,000 is sold at its book value in 2017. Acquisitions of furniture total \)45,000 cash, on which no depreciation is necessary because it is acquired at year-end. What is the cash inflow related to the sale of furniture?

Short answer

The furniture sale generated$25,400in revenue.

Step-by-step solution

Meaning of Depreciation

Depreciation refers to a non-cash expense that apportions the cost of long-term tangible assets over the asset's service life.

Computing cash inflow related to the sale of furniture

The cost of the furniture sold is $55,000, and it is sold for its book value. After the year, $45,000 is spent on the new furniture. Following is a calculation of the cash received from the sale of furniture:

Description	Amount ($)
Cost of furniture sold	55,000
Less: Accumulated depreciation on sold furniture:
Accumulated depreciation, beginning $ 9,000
Depreciation expense for the year 37,600
Accumulated depreciation, closing (17,000)
Accumulated depreciation on the sold furniture	(29,600)
Cash received from the sale of furniture	25,400

Therefore, the furniture sale generated $25,400 in revenue. To determine the cash received from the sale of furniture, the accumulated depreciation on that furniture is subtracted from its cost. (Because the furniture is sold at its book value, there is no profit or loss on its sale.)