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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883
Chapter 7, Problem 7.3.3MBA
Textbook Problem
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Disposal of fixed assets
Using the data from P7-4, indicate the effects on the liquidity metric free cash flow and profitability metric asset turnover for each of the following:

The equipment s sold a( the end of four years for its estimated residual value of $10,000.

To determine

Concept Introduction:

The fixed assets are of two types, one is tangible and other is intangible. The tangible assets are those which can be touched i.e. having a physical presence. An asset which is used in the business for more than one year and is subject to depreciation is the fixed assets.

The expenditure which increases the value of assets economically or its life is added to the cost of the asset i.e. capitalized and the expenditure which does not increase the value or life is debited to the income statement as an expense for the period.

The effect of the sale of equipment on liquidity metrics free cash flows and profitable metrics asset turnover.

Explanation of Solution

The sale of equipment will increase the cash inflow which leads to an increase in free cash flow by the amount of sale. Thus, liquidity metrics free cash flow will increase by $10,000.

The sale of asset i.e. equipment will decrease the asset but does not give any effect on the sales. When there is a decrease in assets with no effect on the sales, then the asset turnover increases i.e. profitability will rise

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Chapter 7 Solutions

Survey of Accounting (Accounting I)
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