Powers Corporation had the following beginning and ending balances for 2013: During the year Powers sold equipment for $30,000 that had originally been purchased for $80,000. The old equipment had accumulated depreciation of $60,000 at the time of sale. To replace the equipment Powers purchased new equipment for $100,000 by making a $10,000 down payment and signing a 2-year note for the balance.
a) Calculate the purchase price of the new equipment.
b) If Powers uses the indirect approach to calculate cash flow from operating activities, what will be the net effect of the sale of the old equipment and the depreciation on the new equipment on cash from operating activities?
c) How will the sale and purchase be reported in Powers' cash flow from investing activities?
d) Will the note be reported? If so, where?

Question

Powers Corporation had the following beginning and ending balances for 2013:  During the year Powers sold equipment for $30,000 that had originally been purchased for $80,000. The old equipment had accumulated depreciation of $60,000 at the time of sale. To replace the equipment Powers purchased new equipment for $100,000 by making a $10,000 down payment and signing a 2-year note for the balance.
a) Calculate the purchase price of the new equipment.
b) If Powers uses the indirect approach to calculate cash flow from operating activities, what will be the net effect of the sale of the old equipment and the depreciation on the new equipment on cash from operating activities?
c) How will the sale and purchase be reported in Powers' cash flow from investing activities?
d) Will the note be reported? If so, where?

Quizplus · Accepted Answer

The Answer of Powers Corporation had the following beginning and ending balances for 2013:  During the year Powers sold equipment for $30,000 that had originally been purchased for $80,000. The old equipment had accumulated depreciation of $60,000 at the time of sale. To replace the equipment Powers purchased new equipment for $100,000 by making a $10,000 down payment and signing a 2-year note for the balance.
a) Calculate the purchase price of the new equipment.
b) If Powers uses the indirect approach to calculate cash flow from operating activities, what will be the net effect of the sale of the old equipment and the depreciation on the new equipment on cash from operating activities?
c) How will the sale and purchase be reported in Powers' cash flow from investing activities?
d) Will the note be reported? If so, where?

Powers Corporation Had the Following Beginning and Ending Balances for 2013