Question

On January 1, Year 1, Chris purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value.

Assume that Chris earned $30,000 cash revenue and incurred $19,000 in cash expenses in Year 3. Chris uses the straight-line method. The office equipment was sold on December 31, Year 3 for $16,000. What is Chris's net income (loss) for Year 3?

Answer 1

      Equipment Account

Date	Particulars	Amount	Date	Particulars	Amount
1 jan. 01	To Bank A/c	34000	31 dec. 01	By Depreciation	4800
	To Transportation Cost	2000		By Bal. C/D	31200
		36000			36000
1 jan. 02	To Bal. B/D	31200	31 dec. 02	By Depreciation	4800
				By Bal. C/d	26400
		31200			31200
1 jan. 03	To Bal. B/D	26400	31 dec. 03	By Depreciation	4800
				By Bank A/c	16000
				By P/L A/C (loss on sale of equipment)	5600
		26400			26400

Statement of Profit/ loss

Income earned 30000

cash expenses (19000)

Depreciation (4800)

loss on sale od equipment (5600)

Profit 600