Question

On July 1, 2016, Crane Company sells machinery for $210500. The machinery originally cost $585000, had an estimated 5-year life and an expected salvage value of $60000. The Accumulated Depreciation account had a balance of $367500 on January 1, 2016, using the straight-line method. The gain or loss on disposal is

$45500 gain.

$97000 gain.

$22750 loss.

$97000 loss.

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Answer 1

Original cost = 585,000

Accumulated depreciation = 367,500

Salvage value = 60,000

Depreciation per year

= (585,000 - 60,000)/5

= 105,000

6 months depreciation will be = 105,000/2

=52,500

As the machinery is sold in july therefore only 6 months depreciation will be considered.

Total accumulated depreciation as on date of sale

= 367,500 + 52,500

=420,000

Gain or loss on sale of asset is to be considered on the basis of book value of the asset as on the date of sale.

Book value

= 585,000 - 420,000

= 165,000

Gain = 210,500 - 165,000

= $45,500

Therefore the correct option is 1st.

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