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:
1. The equipment was sold in the first week of the fourth year for $23,300.
2. The equipment was sold in the first week of the fourth year for $15,250 instead of $23,300.
3. The equipment was sold at the end of four years for its estimated residual value of $10,000.
4. The equipment was discarded at the end of its useful life with no residual value. The balance of the equipment and its related accumulated depreciation is $140,000.
Data from P7-4
New tire retreading equipment, acquired at a cost of $140,000 at the beginning of a fiscal year, has an estimated useful life of four years and an estimated residual value of $10,000. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected.
In the first week of the fourth year, the equipment was sold for $23,300.