Question

A firm owns a piece of equipment that it originally purchased for $250,000. The residual value...

A firm owns a piece of equipment that it originally purchased for $250,000. The residual value is $25,000, the firm uses straight line depreciation, and the useful life is 20 years. The firm purchased the equipment on the first day of year one and sold it on the last day of year 15 for $75,000. What is the gain or loss on the sale?

A.

$11,250 Gain
B.

$6,250 Loss
C.

$12,500 Loss
D.

$75,000 Gain
E.

$81,250 Loss
Business   Accounting   
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Homework Answers

Answer #1

Answer : Option B, $6,250 loss

Explanation :

Calculation of gain / loss on sale of equipment :

Step 1 :

i)Depreciation under SLM = (cost of asset - residual value) ÷ life of asset

= ($2,50,000 - $25,000) ÷ 20

= $11,250

ii)Accumulated Depreciation for 15 years = $11,250 × 15 = $1,68,750

iii)Book value = original cost - Accumulated Depreciation for 15 years

= $2,50,000 - $1,68,750

= $81,250

Therefore

Step 2 :

Gain/(Loss) = Sale value - Book value

= $75,000 - $81,250

= ($6,250)

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