Answer:
Effect on income= $6,100 gain
Explanation:
Giving the following information:
Strawberry Fields purchased a tractor at a cost of $39,000 and sold it two years later for $25,300. Strawberry Fields recorded depreciation using the straight-line method, a five-year service life, and an $7,000 residual value.
First, we need to calculate the accumulated depreciation:
Annual depreciation= (original cost - salvage value)/estimated life (years)
Annual depreciation= (39,000 - 7,000)/5= 6,400
Accumulated= 6,400*2= 12,800
Now, we can determine the loss or profit:
Effect on income= selling price - book value
Effect on income= 25,300 - (32,000 - 12,800)= 6,100 gain
