Question

On April 1, 2017, La Presa Company sells some equipment for $18,000. The original cost was $50,000, the estimated salvage value was $8,000, and the expected useful life was 6 years. On December 31, 2016, the Accumulated Depreciation account had a balance of $29,400. How much is the gain or loss on the sale?
a) $850 loss
b) $5400 loss
c) $2,600 loss

Answer 1

Answer:

Option (a) is correct.

Explanation:

Depreciation in 2017:

$=\frac{Original\ cost-Salvage\ value}{Useful\ life}\times time\ period$

$=\frac{50,000-8,000}{6}\times\frac{3}{12}$

      = $1,750

Accumulated Depreciation = $29,400 + Depreciation in 2017

                                             =  $29,400 +  $1,750

                                             =  $31,150

Book value on date of sale = Original cost - Accumulated Depreciation

                                             = 50,000 - 31,150  

                                              = 18,850

Loss on sale = Book value on date of sale - Sales price

                     = 18,850 - 18,000

                     = $850 (Loss)        

Answer 2

Answer:The answer is $2,600 loss

Explanation:

Cost - Salvage value /useful life

Cost = $50,000

Salvage value =$8,000

Useful life = 6years

50,000- 8,000/6

=42,000/6

= 7,000

Yearly depreciation will be $7,000

Since the accumulated depreciation had a balance of $29,400 on December 31,2016

Net Book value = Original cost - Accumulated depreciation

= 50,000 - 29,400

= 20,600

The disposal of equipment Account will be in T account as follows

Disposal of Equipment Account

Dr: Equipment cost $50,000

Cr: Provision for depreciation $29,400

Cr: Sale Proceed $18,000

Cr: profit & loss $2,600

Balance Dr: $50,000 Balance Cr: $50,000

Since the debit side of the equipment account is greater than credit side of the equipment account The company made a loss on the sale of the equipment of $2,600