>> No, it's not bad news, and this is a good review of something we
talked about a couple videos ago, A gain or
loss on sale does not mean that we sold it for less or more than its market value.
We probably sold it for it's market value.
The gain or loss represents the fact that we didn't depreciate it enough or
we depreciated it too much.
So in this case the loss means that we hadn't depreciated the asset enough by
the time we sold it.
So its book value is above its market value, and so
the loss just corrects the fact that we hadn't appreciated it enough, but
we did sell it for its market value.
Now I want to do one more thing which is try to
balance the accumulated depreciation T account, as another way just to make
sure that we've taken care of everything that's happened relative to buying and
selling and depreciating equipment during the year for Lyons Incorporated.
So here's the accumulated depreciation T account, contra asset.
We don't know the beginning and ending balance yet.
But we know that we have this debit of 5 million, which took
out the accumulated depreciation on the equipment that was sold during the year.
The plant and equipment.
We go back to Footnote 7.
And here we can see the beginning and
ending balance of accumulated depreciation.
Beginning balance was 438.3, ending 496.5.
So that means the depreciation expense has to be 63.2.
That's the credit that we need to make this account balance.
because the two things that affect accumulating depreciation is we
add depreciation expense as a credit to increase the account, and
then we subtract the accumulated depreciation on the equipment we sold.
We debit the account to reduce it.
So the number that makes this balance is 63.2.
And then if we pop back to the operating section of the statement of cash flows for
Lyons, you can see that sure enough, their depreciation was 63.2 during 2012.
And so we made everything balanced by going through all the footnote
disclosures, filling out our T accounts, verify that we weren't missing anything,
and in doing so we figured out the original cost of the property plant and
equipment sold during the year.