Q8. Smith Auto Dealership had beginning net fixed assets of $216,525 and ending

net fixed assets of $208,650. During the year, assets with a combined book

value of $7,844 were sold. Depreciation for the year was $41,320.

What is the net cash flow from the purchase or sale of assets?

The net cash flow is $7,844 from the sale of the assets.

Explanation:

Step 1: Determine the average fixed assets

The average net fixed assets can be determined using the expression;

Av = (Fb+Fe) / 2

where;

Av=average net fixed assets

Fb=net fixed assets at the beginning of the year

Fe=net fixed assets at the end of the year

In our case;

Av=unknown

Fb=$216,525

Fe=$208,650

replacing;

Av = (216,525+208,650) / 2=$212,587.50

The average net fixed assets=$212,587.50

Step 2: Determine the net fixed assets after accounting for depreciation

This can be expressed as;

Net fixed assets=average net fixed assets-depreciation

where;

average net fixed assets=$212,587.50

depreciation=$41,320

replacing;

Net fixed assets = (212,587.50-41,320) = $171,267.50

Step 3: Debit the fixed asset account and credit the cash account

Account Debit Credit

Fixed assets 7,844 163,423.50

Cash flow 163,423.50 7,844

The net cash flow is $7,844 from the sale of the assets.