Question

Equipment was purchased at a cost of $78,000. The equipment had an estimated useful life of five years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 4 for $8,000, determine the gain or loss on the sale of equipment. (Assume the straight-line depreciation method.)

Answer 1

Answer:

Loss of $7,000

Explanation:

Data provided in the question:

Purchasing cost = $78,000

Residual value = $3,000

Useful life = 5 years

Selling cost = $8,000

Now,

Annual depreciation = [ Cost - Residual value ] ÷ Useful life

= [ $78,000 - $3,000 ] ÷ 5

= $75,000 ÷ 5

= $15,000

Therefore,

Accumulated depreciation of 4 years = 4 × Rate of depreciation

= 4 × $15,000

= $60,000

Therefore,

Book value at the end of 4 year = Cost - Accumulated depreciation

= $75,000 - $60,000

= $15,000

Since,

Book value at the end of 4 year is greater than the selling cost

therefore,

there is loss = Book value - Selling cost

= $15,000 - $8,000

= $7,000

Hence,

Loss of $7,000