Question

On January 1, 2016, Sitton Incorporated purchased a machine for $960,000. The machine had a 5-year useful life and $60,000 salvage value, and straight-line depreciation has been recorded. Sitton sold the machine on May 1, 2020 at a gain of $18,000. How much was Sitton paid for the machine

Answer 1

Sitton Incorporated was paid $918,000 for the machine.

Step-by-step explanation:

Sitton Incorporated purchased a machine for $960,000 on January 1, 2016. The machine had a useful life of 5 years and a salvage value of $60,000. Straight-line depreciation was recorded. On May 1, 2020, Sitton sold the machine at a gain of $18,000. To calculate how much Sitton was paid for the machine, we need to subtract the gain from the original purchase price and salvage value.

Original purchase price: $960,000

Salvage value: $60,000

Gain: $18,000

Total amount Sitton was paid for the machine = Original purchase price - Salvage value + Gain

= $960,000 - $60,000 + $18,000

= $918,000

Therefore, Sitton was paid $918,000 for the machine.

Answer 2

Sitton Incorporated was paid $198,000 for the machine when it was sold on May 1, 2020. The book value was calculated based on the straight-line depreciation method, and the gain on sale was added to this book value.

Step-by-step explanation:

To calculate how much Sitton Incorporated was paid for the machine, we need to determine the book value of the machine at the time of sale and add the gain from the sale to it.

Calculating the Book Value

The machine cost $960,000 with a salvage value of $60,000 and a 5-year useful life. Using straight-line depreciation:

Annual Depreciation Expense = (Cost - Salvage Value) / Useful Life = ($960,000 - $60,000) / 5 = $180,000

Depreciation for each full year from 2016 to 2019 (4 years) = $180,000 x 4 = $720,000

Depreciation for 4 months in 2020 = $180,000 / 12 x 4 = $60,000

Total Depreciation = $720,000 + $60,000 = $780,000

Book Value at time of sale = Cost - Total Depreciation = $960,000 - $780,000 = $180,000

Final Sale Price Calculation

Sitton sold the machine at a gain of $18,000, which means:

Sale Price = Book Value + Gain = $180,000 + $18,000 = $198,000

Therefore, Sitton Incorporated was paid $198,000 for the machine on May 1, 2020.