Question

On April 1 of the current year, La Presa Company sells some equipment for $18,000. The original cost was $50,000, the estimated salvage value was $8,000, and the expected useful life was 6 years. Straight-line depreciation is used. On January 1 of the current year, the Accumulated Depreciation account had a balance of $28,000. How much is the gain or loss on the sale?
(A) $2,600 loss
(B) $300 gain
(C) $850 loss
(D) $5,400 gain

Answer 1

Answer:

Loss = $20,250 - $18,000 = $2,250

Explanation:

Provided cost of equipment  = $50,000

Salvage value = $8,000

Expected life = 6 years

Annual straight line depreciation = ($50,000 - $8,000)/6 years = $7,000

Accumulated balance of depreciation = $28,000

That is $28,000/$7,000 = 4 Years

Asset is sold on 1st April, therefore depreciation for the period 1 Jan To 31 March shall also be charged = $7,000 \times \frac{3}{12} = 1,750$

Therefore accumulated depreciation as on 1 April = $28,000 + $1,750 = $29,750.

Book value as on 1 April = $50,000 - $29,750 = $20,250

Sale value of asset = $18,000

Loss = $20,250 - $18,000 = $2,250