Question

In: Accounting

On July 1, 2016, Crane Company sells machinery for $210500. The machinery originally cost $585000, had...

On July 1, 2016, Crane Company sells machinery for $210500. The machinery originally cost $585000, had an estimated 5-year life and an expected salvage value of $60000. The Accumulated Depreciation account had a balance of $367500 on January 1, 2016, using the straight-line method. The gain or loss on disposal is

$45500 gain.

$97000 gain.

$22750 loss.

$97000 loss.

Solutions

Expert Solution

Answer: $45500 gain

Step 1 : Calculation of depreciation per year:

Formula

Straight line method = Cost - salvage value / useful life

                                      $585000 - $60000 / 5 = $105000

Step 2: Calculation of book value as on July 1, 2016:

Accumulated depreciation = $367500 + $105000 * 6/12 (from jan 1 to June 30)

                                                = $420000

Book value as on July 1, 2016 = Cost - accumulated depreciation

                                                      = $585000 - $420000 = $165000

Step 3: Calculation of gain or loss:

Gain on sale = Sale price - book value

Gain on sale = $210500 - $165000 = $45500

All the best...

ekkarill92 answered 2 years ago
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