Question

On January 1, 2013, Jane received $52,000 for used equipment. The equipment was originally purchased on January 1, 2009, and cost $80,000. Jane expected a useful life of 10 years and salvage value of $5,000. It was depreciated using the straight-line method. The journal entry to record the sale would include which of the following? Assume the machine was purchased on January 1, 2009 and depreciated using the straight-line method.

Group of answer choices

Loss of $9,500.

Gain of $2,000.

Loss of $2,000.

Gain of $9,500.

Answer 1

Answer : Gain $2,000, Option B

Explanation :

i)Calculation of carrying value on 1- jan - 2013

Depreciation under straight line method for 4 years (i.e., 2009, 2010, 2011, 2012)

= {( Cost of asset - salvage value )÷ life of the asset } × 4

= {($80,000 - $5,000) ÷ 10 } × 4

= ($75,000 ÷ 10) × 4

= $7,500 × 4

= $30,000

ii)Carrying amount of equipment on 1 - jan - 2013 = $80,000 - $30,000

= $50,000

iii)Jane sold equipment at $ 52,000

Therefore ,

iv)Gain on sale of equipment = $ 52,000 - $50,000

= $2,000.