Question

On January 1, 2012, Vaughn Manufacturing purchased for $768000, equipment having a useful life of ten years and an estimated salvage value of $42600. Vaughn has recorded monthly depreciation of the equipment on the straight-line method. On December 31, 2020, the equipment was sold for $125000. As a result of this sale, Vaughn should recognize a gain of

Answer 1

Gain= $9,860

Step-by-step explanation:

Giving the following information:

Purchase price= $768,000

Salvage value= $42,600

Useful life= 10 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= (768,000 - 42,600) / 10

Annual depreciation= $72,540

Accumulated depreciation= 72,540*9= $652,860

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

Book value= 768,000 - 652,860= $115,140

Gain/loss= 125,000 - 115,140

Gain= $9,860