Question

On January 1, 2013, Nelson Industries purchased a milling machine for $800,000. The machine had a 5-year useful life and $50,000 salvage value, and straight-line depreciation has been recorded. Nelson sold the machine on May 1, 2017 at a gain of $15,000. How much was Nelson paid for the machine

Answer 1

$165,000

Step-by-step explanation:

The computation is shown below:

But before that first we have to compute the depreciation expense which is

Depreciation per year is

= (Cost - Salvage value) ÷ Useful life

= ($800,000 - $50,000) ÷ 5

= $150,000 per year

Now Total depreciation is

= ($150,000 × 4 years) + ($150,000 × 4 months ÷ 12 months)

= $650,000

So, book value as on date of sale is

= $800,000 - $650,000

= $150,000

Therefore, the paid amount is

= $150,000 + $15,000

= $165,000