Question

Drummond Corporation purchased machinery for $960,000 on January 1, 2014. Straight-line depreciation has been recorded based on a $60,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2018 at a gain of $18,000. How much cash did Peterson receive from the sale of the machinery

Answer 1

$198,000

Step-by-step explanation:

The computation of the cash received from the sale of machinery is shown below:

= ($960,000 - $60,000) × 1 ÷ 5years

= $18,0000 per annum.

Now for four years it would be

= $180,000 × 4 years

= $720,000 and

Till May 1, it would be

= $180,000 × 4 months ÷ 12 months

= $60,000

The value of the asset as on May 2018 is

= $960,000 - $720,000 - $60,000

= $180,000

Now the cash received is

= $180,000 + $18,000

= $198,000