Question

g Item5 5 points Time Remaining 1 hour 25 minutes 16 seconds01:25:16 Item 5 Time Remaining 1 hour 25 minutes 16 seconds01:25:16 A piece of equipment is purchased by Great Notch Corporation on January 1 for $46,200. It is expected to have a useful life of four years after which it will have an expected residual value of $6,300. The company uses the straight-line method of depreciation for their equipment. If it is sold for $32,600 exactly two years after it is purchased, the company will record a:

Answer 1

Gain= $6,350

Step-by-step explanation:

Giving the following information:

Purchase price= $46,200

Salvage value= $6,300

Useful life= 4 years

First, we need to determine the annual depreciation and the accumulated depreciation at the moment of the sale:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (46,200 - 6,300) / 4

Annual depreciation= $9,975

Accumulated depreciation= 9,975*2= $19,950

If the selling price is higher than the book value, the company made a gain from the sale:

Book value= 46,200 - 19,950= $26,250

Gain/loss= 32,600 - 26,250

Gain= $6,350