Question

On March 1 of the current year, La Presa Company sells some equipment for $30,000. The original cost was $60,000, the estimated salvage value was $12,000, and the expected useful life was 6 years. Straight-line depreciation is used. On January 1 of the currentyear, the Accumulated Depreciation account had a balance of $32,000. How much is the gain or loss on the sale?

Answer 1

Answer:

They had a gain of $3,333.33

Explanation:

The expression for the accumulated depreciation is as follows;

depreciable cost=Acquisition cost-salvage value

where;

acquisition cost=$60,000

residual value=$12,000

replacing;

depreciable cost=60,000-12,000=$48,000

depreciable cost=$48,000

The annual depreciation can be expressed as;

annual depreciation=depreciable cost/estimated life

where;

depreciable cost=$48,000

estimated life=6 years

replacing;

annual depreciation=48,000/6=8,000

annual depreciation=$8,000

depreciation between January 1 and March 1=(2/12)×8,000=$1,333.33

depreciation by March 1=1,333.33+32,000=$33,333.33

Profit/loss=sale-book value by March 1

book value by March 1=60,000-33,333.33=$26,666.67

Profit/loss=30,000-26,666.67=$3,333.33

They had a gain of $3,333.33