Account analysis
You are a credit analyst for First American Bank, and Badger Business has applied for a loan. The company claims to have more than tripled profits from 2011 to 2012 and believes that it should be given prime credit terms. In addition, you note that Badger has expanded its operations, recently paying $37,000 for new equipment that replaced older equipment, which was sold that same year. No other transactions affected the company”s equipment account. Excerpts from the company”s 2012 financial statements are provided below.
|
2012 |
2011 |
|
|
Balance Sheet: |
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|
Equipment |
$97,400 |
$84,800 |
|
Accumulated depreciation |
$26,400 |
$24,300 |
|
Income statement: |
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|
Net income |
5,200 |
1,500 |
|
Depreciation expense |
8,700 |
7,600 |
|
Statement of cash flow: |
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|
Proceeds from equipment sale |
23,400 |
0 |
REQUIRED:
Reconstruct the journal entry to record the sale of equipment, and comment on Badger”s claim that profits more than tripled in 2012.