Question

On July 1, 2016, Fleming Company sells machinery for $240,000. The machinery originally cost $600,000, had an estimated 5-year life and an expected salvage value of $100,000. The Accumulated Depreciation account had a balance of $350,000 on January 1, 2017, using the straight-line method. The gain or loss on disposal is?

Answer 1

$40,000 gain

Step-by-step explanation:

For computing the gain or loss on disposal, first we have to calculate the depreciation expense which is shown below:

= (Original cost - residual value) ÷ (useful life)

= ($600,000 - $100,000) ÷ (5 years)

= ($500,000) ÷ (5 years)

= $100,000

For 6 months it would be $50,000

Now the gain or loss would be

= Sale value of machinery - (original cost - accumulated depreciation balance - depreciation expense)

= $240,000 - ($600,000 - $350,000 - $50,000)

= $240,000 - $200,000

= $40,000 gain