8. On July 1, 2006, the ABC Co. sold equipment it no longer needed for $100,000.

Question

8. On July 1, 2006, the ABC Co. sold equipment it no longer needed for $100,000. On 12/31/05, the balance in the Equipment Account was $130,000 and the balance in the Accumulated Depreciation account as $40,000. The company uses the straight-line depreciation method, based on an estimated salvage value of $20,000 and estimated life of 11 years. Assuming that the accountant makes all of the necessary journal entries, what was the amount of gain or loss on the sale. Hint: don’t forget to consider the additional 6 months of depreciation expense before calculating the gain or loss.

a. Loss of $27,500 b. Gain of $12,500 c. Gain of $15,000

Explanation / Answer

Depreciation for t]six months from 1/1/2005 to 30/06/2006 = [130000 - 20000] / 11 x 6/12 = $5000

Depreciated Value of the equipment = 130000 - 4000 - 5000

= $85000

Sale Price = $100000

Gain on sale = 100000 - 85000

= $15000

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