Question

Bowie Company uses a calendar year and the straight line depreciation method. On December 31, 2018, after adjusting entries were posted, Bowie Company sold a machine which was originally purchased on January 1, 2015. The historical cost was $24,000, the salvage value assumed was $2,000 and the original estimated life was five years.. It was sold for $4,400 cash. Using this information, how much should be recorded on December 31 for the Gain or (Loss)? Round to whole dollars.

Answer 1

There is no gain or loss as the sale value ie equal to the net book value

Step-by-step explanation:

Computation of gain or loss on disposal of equipment

Historical cost of machine $ 24,000

Less: Estimated salvage value $ 2,000

Depreciable basis $ 22,000

Estimated useful life 5 years

Depreciation cost per year $ 22,000/5 $ 4,400

Depreciation charged for the period

January 1 2015 to December 31 2018 = 4 years

$ 4,400 * 4 years $ 17,600

Net book value of machine on date of sale

$ 22,000 - $ 17,600 $ 4,400

Sale value of machine $ 4,400

Gain or Loss 0