Question

On January 1, 2019. A Corp purchased equipment for $20,000. The equipment had an estimated useful life of 5 years and a salvage value of $2,000. A Corp. uses the straight-line method for depreciation It A Corp sells the equipment for $13,600 on December 31 2020, it will have an:___________. (Hint: Watch the dates) a. $2,000 loss. b. $2,000 gain c. $800 gain d. $800 loss

Answer 1

c. $800 gain

Step-by-step explanation:

First we need to calculate the accumulated depreciation as on December 31, 2020

Accumulated depreciation = ( ( Cost - Salvage value ) / Useful Life ) x Numbers of years

Placing values in the formula

Accumulated depreciation = ( ( $20,000 - $2,000 ) / 5 year ) x ( December

31, 2020 - January 1, 2019 )

Accumulated depreciation = $3,600 x 2 years

Accumulated depreciation = $7,200

Now calculate the carrying value as on December 31, 2020

Carrying Value = Cost of asset - Accumulated Depreciation

Placing values in the formula

Carrying Value = $20,000 - $7,200 = $12,800

Now calculate the gain or loss on disposal

Gain / Loss on Disposal = Sale price - Carrying value

Placing values in the formula

Gain / Loss on Disposal = $13,600 - $12,800

Gain on Disposal = $800 Gain