Question

A machine was purchased at a cost of $70,000. The equipment had an estimated useful life of eight years and a residual value of $6,000. Assuming the equipment was sold at the end of Year 6 for $14,000, determine the gain or loss on the sale of the equipment. (Assume the straight-line depreciation method.)

Answer 1

Answer:

Loss on sale of machinery  = $8,000

Explanation:

Under Straight line depreciation method, depreciation is calculated as follows:

Depreciation to be charged per annum over the life of asset is given by the formula: = $\frac{cost\ -\ salvage\ value}{useful\ life}$

Depreciation = ($70,000 - $ 6,000) ÷ 8 years

Depreciation to be charged every year = $8,000

Now, total depreciation charged till the end of 6 years = 6 × $8,000 = $48,000

Book Value at the end of year 6 = $70,000 - $48,000= $22,000

Sale Value of the asset = $ 14,000

Loss on sale = $22,000 - $14,000 = $8,000