A company purchased an asset 3 years ago for $125,000. It sold the asset in the current year for $12,000. The current year’s CFO exceeds net income by $5,000. Assuming that these are the only transactions undertaken by the company and no depreciation was charged during the year, the accumulated depreciation charged against the asset is closest to:
$108,000. $118,000. $17,000.
I believe the answer is $108,000.
Since CFO is greater than net income by $5,000, and no other transactions that would affect CFO have taken place (including D&A), the only option left is a +$5,000 adjustment from the loss on the sale of the asset. Since sales of assets are typically non-operating items, gains from asset sales are subtracted from NI and losses from asset sales are added when calculating CFO.
The loss of $5,000 means the asset’s carrying value at the time of sale was $17,000 ($12,000 + $5,000), where G/L from an asset sale = carrying value - sale price. Subtracting $17,000 from $125,000 is $108,000.