Sure, let's go through the steps needed to compute the amount of cash flow associated with the purchase of machinery based on the information given.
### 1. Determine the net increase in machinery from Year 1 to Year 2:
The balance of the machinery account in Year 2 is [tex]$524,100.
The balance of the machinery account in Year 1 is $[/tex]425,300.
The net increase in the machinery account is:
[tex]\[ \text{Net increase} = \$524,100 - \$425,300 = \$98,800 \][/tex]
### 2. Calculate the book value of old machinery sold:
The old machinery had an original cost of [tex]$25,170.
The accumulated depreciation on the old machinery was $[/tex]21,070.
The book value of the old machinery is:
[tex]\[ \text{Book value} = \$25,170 - \$21,070 = \$4,100 \][/tex]
### 3. Calculate the cash inflow from the sale of old machinery:
There was a gain of [tex]$4,780 from the sale of the old machinery.
The cash inflow from the sale is:
\[ \text{Cash inflow} = \text{Book value} + \text{Gain} = \$[/tex]4,100 + \[tex]$4,780 = \$[/tex]8,880 \]
### 4. Calculate the cost of machinery purchased:
To find the total cost of machinery purchased, we need to consider both the net increase in the machinery account and the cash inflow from the sale of old machinery:
[tex]\[ \text{Cost of machinery purchased} = \text{Net increase} + \text{Cash inflow from sale} = \$98,800 + \$8,880 = \$107,680 \][/tex]
Therefore, the cost of machinery purchased during Year 2 is \$107,680.
