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19 September, 12:09

Stevenson Company purchased equipment for $250,000 on January 1, 2010. The estimated salvage value is $50,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. On July 1, 2013 Stevenson sold the equipment for $100,000. Calculate the gain or loss on the sale of the equipment

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  1. 19 September, 12:29
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    The answer is loss of $10,000 on the sale of the equipment

    Explanation:

    The formula for straight-line depreciation is:

    (Cost of asset - salvage value) : number of useful life.

    Cost of asset is $250,000

    Salvage value is $50,000

    Useful life is 5 years

    So depreciation for the year is:

    ($250,000 - $50,000) : 5 years

    $200,000 : 5 years

    =$40,000

    January 1 2010 through June 30 2013 is 3 years and 6months

    Accumulated depreciation will be:

    3.5 years (3 years + 6months/12 months) x $40,000

    $140,000

    Carrying value or net book value at this date is $250,000 - $140,000

    =$110,000.

    The equipment was sold for $100,000.

    Selling price - carrying value

    =$100,000 - $110,000

    = - $10,000

    We have a loss of $10,000 on the sale of equipment
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