Use the information below for Shorter Inc.for 2016 and 2017 to answer the following question. $$\begin{array} { l r }
\text { Equipment, December 31,2016 } & \$ 65,000 \
\text { Equipment, December } 31,2017 & 72,000 \
\text { Accumulated depreciation, December 31,2016 } & 39,000 \
\text { Accumulated depreciation, December 31,2017 } & 30,000
\end{array}$$ During 2017, Shorter Inc.sold equipment with a cost of $30,000 and accumulated depreciation of $25,000.A gain of $3,000 was recognized on the sale of the equipment This was the only equipment sale during the year. Assume that all purchases of equipment were paid with cash.How much cash was paid by Shorter for the purchase of equipment during 2017?
A) $7,000
B) $30,000
C) $37,000
D) $72,000

Question

Use the information below for Shorter Inc.for 2016 and 2017 to answer the following question. $$\begin{array} { l r } 
\text { Equipment, December 31,2016 } & \$ 65,000 \
\text { Equipment, December } 31,2017 & 72,000 \
\text { Accumulated depreciation, December 31,2016 } & 39,000 \
\text { Accumulated depreciation, December 31,2017 } & 30,000
\end{array}$$ During 2017, Shorter Inc.sold equipment with a cost of $30,000 and accumulated depreciation of $25,000.A gain of $3,000 was recognized on the sale of the equipment This was the only equipment sale during the year. Assume that all purchases of equipment were paid with cash.How much cash was paid by Shorter for the purchase of equipment during 2017?
A) $7,000
B) $30,000
C) $37,000
D) $72,000

Quizplus · Accepted Answer

To calculate the cash paid for the purchase of equipment during 2017, we need to adjust the equipment account for the sale and then determine the net increase in the equipment account. The original equipment value increased from $65,000 to $72,000, a $7,000 increase. However, equipment worth $30,000 was sold, so the net change in equipment before purchases is a decrease of $23,000 ($7,000 increase - $30,000 sale). Since a gain of $3,000 was recognized, the book value of the sold equipment was $27,000 ($30,000 cost - $25,000 accumulated depreciation), meaning the actual cash effect of the sale was a $3,000 gain. To reconcile the equipment account to a $7,000 increase, Shorter Inc. must have purchased equipment worth $37,000 ($7,000 net increase + $30,000 to replace sold equipment).

Use the Information Below for Shorter Inc During 2017, Shorter Inc