Question

As part of a major renovation at the beginning of the year, bonham’s bakery sold shelving units (store fixtures) that were 13 years old for $1,900 cash. the original cost of the shelves was $6,600 and they had been depreciated on a straight-line basis over an estimated useful life of 15 years with an estimated residual value of $900. a. $5,500 b. $6,000 c. $6,100 d. $6,500

Answer 1

The book value of the shelving units is $1,660, calculated by subtracting the accumulated depreciation from the original cost. Since the units sold for $1,900, the gain on sale is $240, which is the difference between the sale price and the book value.

Step-by-step explanation:

The student is asking how to calculate gain or loss from the sale of an asset that has been depreciated. To find the gain or loss, you subtract the book value of the asset from the sale price. Here's the step-by-step calculation:

1. Calculate the total amount of depreciation. Since the shelving units are depreciated over a 15-year life and their cost was $6,600 with a residual value of $900, annual depreciation is ($6,600 - $900) / 15 = $380 per year.
2. Multiply the annual depreciation by the number of years the units were used. With 13 years of use, the accumulated depreciation is $380 * 13 = $4,940.
3. Subtract the accumulated depreciation from the original cost to get the book value: $6,600 - $4,940 = $1,660.
4. Finally, subtract the book value from the sale price to determine the gain or loss: $1,900 - $1,660 = $240. This amount represents a gain, as the sales price is higher than the book value.