Question

Career Services, Incorporated sold some office equipment for $52,000 on December 31, 2021. The journal entry to record the sale would include a gain or a loss of how much if the original cost of the equipment was $80,000 with a residual value of $5,000 and a useful life of 10 years
Assume the machine was purchased onJanuary 1,2009 and depreciated using the straight-line method.

A. Gain of $2,000.
B. Loss of $9,500
C. Gain of $9,500
D. Loss of $2,000

Answer 1

Answer:

Date of selling machine is 31 Dec 2021, then gain of $47,000

If date of selling this machine is 31 Dec 2012 (used tenor: 4 years), then gain of 2,000

Explanation:

Depreciation per year = (original cost $80,000  - residual value $5,000)/ useful life of 10 years

= $7,500 per year

Date of purchase: January 1, 2009

Date of sold:  December 31, 2021

⇒ Actual life of this machine = 13 years, but the maximum depreciation as accounting rule is for 10 year only

After 13 years, the book value = original cost - depreciation booked

= $80,000 - $7,500*10 = $5,000

Gain/ Loss =  sold price - boo value = $52,000 - $5,000 = $47,000

If date of selling this machine is 31 Dec 2012 (used tenor: 4 years), then we have:

Gain/ Loss = sold price - book value

= $52,000 - ($80,000 - $7,500*4) = 2,000