Question

Jing Company was started on January 1, Year 1 when it issued common stock for $28,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $15,200 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $1300. The equipment had a five-year useful life and a $5700 expected salvage value. Assume that Jing Company earned $17,400 cash revenue and incurred $11,000 in cash expenses in Year 3. Using straight-line depreciation and assuming that the office equipment was sold on December 31, Year 3 for $8900, the amount of net income or (loss) appearing on the December 31, Year 3 income statement would be:

Answer 1

Answer:

5,280 net income for the Year 3

Explanation:

This would be the situation:

17,400 revenue

11,000 expenses

gain/loss on sale of equipment

= net income year 3

To know the result of the sale of equipment we have to do

sales price - book value = gain/loss on sale of equipment

8900         -  book value   = gain/loss

We have to determinate the book value.

book value = adquisition cost - acumulated depreciation

The equipment cost 15,200 + 1,300 transportation cost = 16,500 Adquisition Cost

acumulated depreciation = depreciation per year * 3 years

and depreciation per year is:

$\ depreciation per year = \frac{Adquisition Value - Salvage Value }{Useful Life}$

Here we have all the values, so we stop digging and start solving.

• depreciation = (16,500-5,700)/5 = 2,160

• acumulated depreciation = 2,160 * 3 = 6,480

• book value = 16,500 - 6,480 = 10,020

• gain/loss = 8,900 - 10,020 = -1,120 LOSS on sale of Equipment

net income = 17,400 - 11,000 - 1,120 = 5,280 net income for the Year 3