Question

Waterway Industries purchased machinery for $905000 on January 1, 2017. Straight-line depreciation has been recorded based on a $52000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2021 at a gain of $13000. How much cash did Waterway receive from the sale of the machinery?

Answer 1

$ 178,733

Step-by-step explanation:

From January 2017 when the machinery was acquired till May 1 2021 when it disposed of, depreciation would have been charged for full years 2017,2018,2019 and 2020 while 2021 depreciation would only be for 4 months.

Annual depreciation=cost-salvage value/ useful life

annual depreciation=($905000-$52000)/5=$170,600

depreciation for 4 years=$170,600*4=$682,400

depreciation for 4 months=$170,600*4/12=$56,867

accumulated depreciation=$682,400+$56,867=$739,267

carrying value=cost-accumulated depreciation= $905000- $739,267 =$165,733

gain on disposal=cash proceeds-carrying value

$13000=cash proceeds-$165,733

cash proceeds=$165,733 +$13000=$ 178,733