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Sarasota Company purchased machinery for $865000 on January 1, 2017. Straight-line depreciation has been recorded based...

Sarasota Company purchased machinery for $865000 on January 1, 2017. Straight-line depreciation has been recorded based on a $54500 salvage value and a 5-year useful life. The machinery was sold on May 1, 2021 at a gain of $18500. How much cash did Sarasota receive from the sale of the machinery?

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Answer #1

Straight line depreciation expense per year = (Cost - Salvage value) / Years

= ($865000 - $54500) / 5

= $810500 / 5

= $162100

2017 depreciation expense = $162100

2018 depreciation expense = $162100

2019 depreciation expense = $162100

2020 depreciation expense = $162100

2021 depreciation expense = $162100 * (4/12)

= $54033

Book Value on May 1 2021 = $865000 - ($162100 *4) - $54033

= $162567

Cash received from the sale of machinery = Book Value + Gain on sale

= $162567 + $18500

= $181067

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