Answer:
a capital gain of $1,000.
Explanation:
Given,
The cost price of Equipment = $10,000
Useful life of the equipment = 10 years
Residual value = $0
Depreciation (Straight-line method) = Cost price/useful life
Depreciation (Straight-line method) = $10,000/10 = $1,000
Since, it is a straight line method, the depreciation will remain same each year. Therefore, at the end of the fifth year, the depreciation of equipment = $1,000 x 5 = $5,000
At the end of the fifth year,
The book value of the equipment= Equipment - Accumulate depreciation= $(10,000 - 5,000) = $5,000
If the company sales the equipment after the end of the fifth year,
there will be a capital gain.
Capital Gain of equipment = Sales price of equipment - book value of equipment
Capital Gain of equipment = $6,000 - 5,000 = $1,000. The journal entry will be -
Cash/Bank Debit $6,000
Accumulated Depreciation Debit $5,000
Gain on sale of equipment Credit $1,000
Equipment Credit $10,000
