Question

Concord Corporation purchased machinery for $855000 on January 1, 2017. Straight-line depreciation has been recorded based on a $53000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2021 at a gain of $21500. How much cash did Concord receive from the sale of the machinery?

$128433

$234433

$138433

$181433

Answer 1

Concord Corporation purchased machinery for $855000 on January 1, 2017. Straight-line depreciation has been recorded based on a $53000 salvage value and a 5-year useful life.

Here under straight line depreciation method the depreciation per year remain the same and calculated as = ( cost - salvage value ) / useful life.

Thus depreciation per year = ( 855000 - 53000 ) / 5 = $ 802000 / 5

Depreciation per year = $ 160400.

Here the machinery is sold on May 1 2021,

so depreciation till 31st December 2020 i.e for 4 years i.e 2017 to 2020. Will be = 4 × $ 160400 = $ 641600.

In 2021, depreciation is used only for 4 months i.e Jan to April ,as it is sold on 1st May so April end is taken,

Depreciation for 2021 , will be in proportion to the 4 months i.e = $ 160400 × 4/12 = $ 53467. ( Rounded off)

Thus accumulated depreciation till the date of sale = depreciation till 2020 + depreciation of ,2021 . I.e = $ 641600 + 53467.

Accumulated depreciation till date of sale = $ 695,067.

Since value at the date of sale = Cost - accumulated depreciation. = $ 855,000 - $ 695,067. = $ 159933.

Thus Gain on sale of machinery = sales price - value of machinery at the date of sale.

Thus , 21500 = sales price - 159933.

Sales price = $ 159933 + 21500

Thus cash receipts on sale of machinery ,= $ 181,433.

Thus the correct option is----------D i.e $ 181,433.