Question

On May 1 of the current year, La Presa Company sells some equipment for $25,000. The original cost was $50,000, the estimated salvage value was $5,000, and the expected useful life was 5 years. Straight-line depreciation is used. On January 1 of the current year, the Accumulated Depreciation account had a balance of $18,000. How much is the gain or loss on the sale?

Answer 1

Answer:

The loss on sale is $ 4,000.

Explanation:

Loss or gain on an Asset can be determined by this formula:

Loss or gain = Disposal/Consideration price - Book Value of Asset.

Determining book value.

Book Value of Asset = Acquisition cost - Accumulated depreciation.

Acquisition cost is 50,000.

Annual depreciation expense = Depreciation base/Number of years.

(50,000 - 5,000) /5= 9,000

Accumulated depreciation is 18,000 + (9000 × 4/12) = 21,000.

Therefore book value of asset = 50,000 - 21,000.

Book Value of Asset = 29,000.

Disposal/Consideration price = 25,000

Determining loss or gain on asset disposal.

Loss or gain = Disposal/Consideration price - Book Value of Asset.

Loss or gain = 29,000 - 32,000.

Loss on sale was = 4,000.