Reference no: EM131911113

Question - The Buddy & Lola Company purchased a piece of equipment with a list price of $95,000 on 1/1/13 . The following amounts were related to the equipment purchase:

1. The purchase was financed with a bank loan. $2, 000 in interest was paid in 2013.

2. The company purchased a 5 - year insurance policy on the equipment for a cost of $15,000.

3. Terms of the purchase were 2/10, n/30, and the equipment was shipped FOB shipping point. The freight charges were $1,250.

4. The company paid an outside contractor $2,000 to install the equipment.

5. A state - required pollution - control device was installed at a cost of $4,000.

6. During 2013, Buddy & Lola paid $2,000 in maintenance costs on the m a chine.

Required:

1. Determine the acquisition cost of the equipment.

2. Calculate the depreciation expense for the equipment purchased by Buddy & Lola Company for 2013 and 2014, using straight - line, units - of - production, and double declining balance. The equipment is expected to have a useful life of 5 years, and has an estimated residual value of $7,000. It is expected to be used for 20,000 hours over its life. It was used 3,200 and 2,900 hours in 2013 and 2014, respectively.

3. Assume Buddy & Lola Company sells the equipment on 6/30/16. Depreciation expense is current through 12/31/15. (Assume straight - line depreciation.) The sale price is $30,000. What is the gain or loss on the sale? Where would the gain or loss be reported? What is the impact on the Statement of Cash Flows?