On September1, 20x9, Grande Communications purchased a new piece of equipment th

Question

On September1, 20x9, Grande Communications purchased a new piece of equipment that cost $25,000. The estimated useful life is 5 years and estimated residual value is $2,500. Assume that Grande uses the straight - line method of depreciation and sells the equipment for $11,500 on September 1, 20x10. The result of the sale of the equipment is a gain (loss) of: On September1, 20x9, Grande Communications purchased a new piece of equipment that cost $25,000. The estimated useful life is 5 years and estimated residual value is $2,500. Assume that Grande uses the straight - line method of depreciation and sells the equipment for $11,500 on September 1, 20x10. The result of the sale of the equipment is a gain (loss) of: On September1, 20x9, Grande Communications purchased a new piece of equipment that cost $25,000. The estimated useful life is 5 years and estimated residual value is $2,500. Assume that Grande uses the straight - line method of depreciation and sells the equipment for $11,500 on September 1, 20x10. The result of the sale of the equipment is a gain (loss) of:

Explanation / Answer

Under straight line method depreciation can be calculated as = (cost of asset - residual value) / life of asset = (25000-2500) / 5 4500 per year Now Book value of asset after 1 year on Sep. 1 20x10 = 25000-4500 20500 Sale Value = 11500 Since sale price is less then book value, we will incurr loss of = 20500-11500 = 9000

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