Question

Use the information below to answer the questions that follow. Enter your answers using digits only - no dollar signs, commas, or decimal points. The business's year-end is December 31.

Use the information below to answer the questions that follow. Enter your answers using digits only - no dollar signs, commas, or decimal points. The business's year-end is December 31.
Cost of equipment = 24000
Useful life in years = 5
Residual value = 0
Date purchased = September 1, 2021
Date of disposal = October 31, 2023
Cash received on disposal = 12000
a) What is the accumulated depreciation on the date of the disposal?
b) What is the book value of the equipment on the date of disposal?
c) What is the amount of the gain or loss on the disposal? If a loss, start your answer with a - sign.

Answer 1

a) The accumulated depreciation on the date of disposal is $9600. b) The book value of the equipment on the date of disposal is $14400. c) The amount of the loss on the disposal is $2400.

Step-by-step explanation:

a) To find the accumulated depreciation on the date of disposal, we need to calculate the annual depreciation expense. The formula for depreciation expense is (Cost of equipment - Residual value) / Useful life. In this case, the annual depreciation expense is (24000 - 0) / 5 = 4800. Since the equipment was purchased on September 1, 2021, the total depreciation expense on the date of disposal (October 31, 2023) would be for 2 years, which is 4800 * 2 = 9600.

b) The book value of the equipment on the date of disposal can be calculated by subtracting the accumulated depreciation from the cost of equipment. In this case, the book value of the equipment on the date of disposal is 24000 - 9600 = 14400.

c) To calculate the gain or loss on the disposal, we need to compare the cash received on disposal with the book value of the equipment. In this case, the gain on the disposal is 12000 - 14400 = -2400. Since it is a loss, the answer would start with a '-' sign. Therefore, the amount of the loss on the disposal is $2400.