Question

On January 1, 2018, XYZ Company paid $380,000 to purchase land, building, and equipment. The market values of these assets on that date were: land $60,000; building $200,000; equipment $140,000. Before the property could be used, XYZ Company had to spend $5,000 to put the equipment in working order. The building was assigned a useful life of 20 years with a $4,000 salvage value. The building will be depreciated using the straight-line method. On October 1, 2028, XYZ Company sold the building for $73,000 cash. Calculate the amount of the loss recorded on the sale of the building.

Answer 1

Amount of the loss recorded on the sale of the building= 17,025

Working

	Land	Building	Equipment	Total
Fair Value	$      60,000.00	$ 2,00,000.00	$ 1,40,000.00	$ 4,00,000.00
Lumpsum amount paid				$ 3,80,000.00
Allocation of lumpsum amount in ratio of Fair value	$      57,000.00	$ 1,90,000.00	$ 1,33,000.00	$ 3,80,000.00
Add: Additional Cost paid for equipment			$        5,000.00
Total Value of asset purchased	$      57,000.00	$ 1,90,000.00	$ 1,38,000.00	$ 3,85,000.00

Straight line Method
A	Cost	$     1,90,000.00
B	Residual Value	$           4,000.00
C=A - B	Depreciable base	$     1,86,000.00
D	Life [in years left ]	20
E=C/D	Annual SLM depreciation	$           9,300.00

Depreciation schedule
Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
2018	$   1,90,000.00	$           9,300.00	$   1,80,700.00	$         9,300.00
2019	$   1,80,700.00	$           9,300.00	$   1,71,400.00	$      18,600.00
2020	$   1,71,400.00	$           9,300.00	$   1,62,100.00	$      27,900.00
2021	$   1,62,100.00	$           9,300.00	$   1,52,800.00	$      37,200.00
2022	$   1,52,800.00	$           9,300.00	$   1,43,500.00	$      46,500.00
2023	$   1,43,500.00	$           9,300.00	$   1,34,200.00	$      55,800.00
2024	$   1,34,200.00	$           9,300.00	$   1,24,900.00	$      65,100.00
2025	$   1,24,900.00	$           9,300.00	$   1,15,600.00	$      74,400.00
2026	$   1,15,600.00	$           9,300.00	$   1,06,300.00	$      83,700.00
2027	$   1,06,300.00	$           9,300.00	$      97,000.00	$      93,000.00
2028	$      97,000.00	$ 6,975.00	$      90,025.00	$ 99,975.00

In year 2028 depreciation is for 9 months only.

Straight line
Cost	$     1,90,000.00
Accumulated depreciation	$         99,975.00
Book value	$         90,025.00
Sales price	$         73,000.00
Book value	$         90,025.00
Gain /(loss)	$      (17,025.00)

Date	General Journal	Debit	Credit
01-Oct	Cash	$     73,000.00
	Accumulated Depreciation-Equipment	$     99,975.00
	Loss on sale of Building	$     17,025.00
	Building		$    1,90,000.00
	(Equipment sold)