Equipment with a useful life of 5 years and a residual value of $6,000 was purch

Question

Equipment with a useful life of 5 years and a residual value of $6,000 was purchased on January 3, 2002 for $48,500. The machine was sold on January 5, 2007 for $13,000. (a) What is the book value of the machine on January 5, 2007 assuming that straight-line depreciation is used? (b) Illustrate the effects on the accounts and financial statements of the sale of the machine on January 5, 2007. (c) Illustrate the effects on the accounts and financial statements of the sale of the machine if it had been sold for $18,000 instead.

Explanation / Answer

a.Because the machine have a 5 years life time, at January 5th, 2007, its book value equal to its savage value which is $6000. b. It will be record as a capital gain of $7000. c. It will be record as a capital gain of $12000.

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