The following beginning and ending balances were drawn from the records of Allen Company. If Allen Company sold equipment that had an original cost of $1,150,000 and accumulated depreciation of $550,000 for $325,000, how much did Allen pay for new equipment?
A)$225,000
B)$1,700,000
C)$450,000
D)$600,000

Question

The following beginning and ending balances were drawn from the records of Allen Company.  If Allen Company sold equipment that had an original cost of $1,150,000 and accumulated depreciation of $550,000 for $325,000, how much did Allen pay for new equipment?
A)$225,000 
B)$1,700,000 
C)$450,000 
D)$600,000

Quizplus · Accepted Answer

To find the cost of new equipment, we need to find the change in the fixed assets account. This can be found using the formula:
Change in fixed assets = (Ending balance of fixed assets) - (Beginning balance of fixed assets) + (Depreciation expense) - (Fixed assets sold)
Plugging in the given values, we get:
Change in fixed assets = ($2,100,000) - ($1,800,000) + ($500,000) - ($325,000) = $475,000
Therefore, Allen Company paid $475,000 for new equipment. The answer choice closest to this amount is D: $600,000, which is the best choice.

The Following Beginning and Ending Balances Were Drawn from the Records