Question

On July 1, 2014, Dillman Kennels sells equipment for $66,000. The equipment originally cost $180,000, had an estimated 5-year life and an expected salvage value of $30,000. The Accumulated Depreciation account had a balance of $105,000 on January 1, 2014, using the straight-line method. The gain or loss on disposal is a. $9,000 gain. b. $6,000 loss. c. $9,000 loss. d. $6,000 gain. A company sells a plant asset that originally cost $225,000 for $75,000 on December 31, 2014. The accumulated depreciation account had a balance of $90,000 after the current year's depreciation of $22,500 had been recorded. The company should recognize a a. $150,000 loss on disposal. $60,000 gain on disposal c. $60,000 loss on disposal $37,500 loss on disposal ()()

Answer 1

Answer:

(D) $6,000 gain; (C) $60,000 loss on disposal

Explanation:

In the first question,

Original cost = $180,000

Estimated useful life = 5 years

Expected salvage value = $30,000

Therefore, annual deprecation = (180,000-30,000)/5 = 150,000/5 = $30,000.

With an accumulated depreciation of $105,000 on January 1, 2014 and a sale of the equipment on July 1, 2014, we need to add to the accumulated depreciation the depreciation for the six month period from January 1 to July 1 to determine the accumulated depreciation up to the point of sale.

6 month depreciation = 1 year depreciation/2 = 30,000/2 = 15,000

Therefore, accumulated depreciation up to the point of sale = 105,000 + 15,000 = 120,000.

Therefore, net book value (NBV) at time of sale = original cost - accumulated depreciation

= 180,000 - 120,000 = 60,000.

Thus, given a sale value of 66,000, there gain/(loss) on sale = sale value - NBV = 66,000 - 60,000 = 6,000 gain.

In the Second Question,

Original cost = $225,000

Sale value = $75,000

Accumulated depreciation = $90,000 (up to the point of sale).

Therefore, NBV at the point of sale = original cost - accumulated depreciation = 225,000 - 90,000 = 135,000.

Thus, profit/(loss) on disposal = sale value - NBV = 75,000 - 135,000 = -60,000 = 60,000 loss on disposal.