Amanda Company purchased a computer that cost $10,600. It had an estimated usefu

Question

Amanda Company purchased a computer that cost $10,600. It had an estimated useful life of five years and a residual value of $1,300. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,150 cash. Which of the following statements correctly describes the computer sale? Assets decrease $5150 and stockholders' equity is not affected. O Assets and stockholders equity both increase by $130 O Assets and stockholders equity both decrease by $130. O Assets and stockholders' equity both increase by $5,150

Explanation / Answer

Annual depreciation=(Cost-Salvage value)/Useful life

=(10600-1300)/5=$1860/year

Hence book value as on date of sale=10600-(1860*3)=$5020

Hence gain on sale=(5150-5020)=$130

Hence the correct option is B.

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