On December 31, 2010, Stable Company sold a piece of equipment that was purchase

Question

On December 31, 2010, Stable Company sold a piece of equipment that was purchased on January 1, 2005. The equipment originally cost $820,000 and has an estimated useful life of eight years. Stable uses the straight-line method of depreciation. What is the gain/loss on the sale of equipment that Stable will recognize if the equipment was sold for $230,000?

1.  $230,000 Gain

2.      $25,000 Loss

  3.     $25,000 Gain

    4.   $73,750 Gain

     5.  . $0; no gain or loss

On December 31, 2010, Stable Company sold a piece of equipment that was purchased on January 1, 2005. The equipment originally cost $820,000 and has an estimated useful life of eight years. Stable uses the straight-line method of depreciation. What is the gain/loss on the sale of equipment that Stable will recognize if the equipment was sold for $230,000?

Explanation / Answer

purchased on January 1, 2005

Annual depreciation = $820,000/8 = $102,500

January 1, 2005 to December 31, 2010 is 6 years, so accumulated depreciation at December 31, 2010 = $102,500 x 6 = $615,000, and book value = $205,000. If it's sold for $230,000, there's a gain of $25,000.

Answer: $25,000 Gain

Journal entry:

Dr Cash 230,000

Dr Accumulated depreciation 615,000

Cr Equipment 820,000

Cr Gain on sale of equipment 25,000

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