CFA Practice Question

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CFA Practice Question

Consider the following:

Machinery, beginning balance: $114,000
Machinery, ending balance: $100,000
Accumulated Depreciation, Machinery, beginning balance: $60,000
Accumulated Depreciation, Machinery, ending balance: $64,000
Depreciation expense: $15,000

What was the amount of cash inflow from the sale of old machinery during the year? Assume no other transactions affected the machinery account and that the sale of the machinery did not result in a gain or loss on disposal.
A. $3,000
B. $14,000
C. $11,000
Explanation: When machinery is removed from the ledger, the accumulated depreciation related to the machinery is debited. In this case, the debit was $60,000 + $15,000 - $64,000 = $11,000. The machinery account decreased by $14,000 ($114,000 - $100,000). The sale of the machinery involved a debit to Accumulated Depreciation for $11,000, a debit to Cash for $3,000, and a credit to Machinery for $14,000.

User Contributed Comments 8

User Comment
shasha no other transaction: no other sold-out, no newly purchased; no +/- : the sold-out was based on a market value which was equal to its book value. above two premise makes things simple.
murli Asset A/c given is Gross not Net of depreciation.
CoffeeGirl historical cost of asset - accumulated depreciation related to this asset = sales price of asset
accumulated depreciation change = 60000+15000-64000 = 11000
cost of asset = 14000
so, price of asset = 14000 - 10000 = 3000
this is the cash inflow from sales of asset.
wundac Good explanation but I think you mean 14000-11000 = 3000
azramirza Mach a/c=op bal 114000 ending bal 100000 bal=14000
Acc depn a/c= opening 60000+add depn(15000)=75000 ending bal=64000 bal=11000
mach a/c=14000-(depn)11000=3000
showmethemoney beg book value = 114000-60000 = 54000
end book value = 100000-64000 = 36000

difference: 18000

depreciation expense takes up 15000.

so you sold the machine for 3000.
ColonelCFA showmethemoney! good stuff
bidisha Yea thanks showme
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