1. A company purchased equipment for $60,000 on January 1 of its first year. The equipment’s original...

A company purchased equipment for $60,000 on January 1 of its first year. The equipment’s original estimated useful life is 8 years and its estimated salvage value is $12,000. The company uses the straight-line method of depreciation. On December 31 of its fourth year, before year-end adjusting entries have been recorded, the company decides to extend the estimated useful life 3 years giving it a total life of 11 years. The company did not change the salvage value and continues to use the straight-line method. How much depreciation expense should be recorded for the fourth year?

Group of answer choices

a. $6,750

b. $3,750

c. $6,000

d. $5,333

e. $4,667

In the current year, a company sold equipment for $20,000. The original cost was $70,000, the estimated salvage value was $4,000, and the expected useful life was 6 years. The equipment was fully depreciated. How much is the gain or loss on the sale?

Group of answer choices

a. $14,000 loss

b. $16,000 gain

c. $50,000 loss

d. $5,400 gain

e. $7,000 gain

Solutions

Expert Solution

Cost	$ 60,000
Previous annual Depreciation	($60,000-$12,000) / 8 = $6,000
Accumulated depreciation on 3rd year end	6,000*3 = $18,000
Book value as on 3rd year	$60,000 - $18,000 = $42,000
Estimated remaining life	8 years
New annual depreciation	($42,000-$12,000) / 8 = $3,750
Fourth year depreciation expense	$ 3,750

Answer is B. $3,750

Sales consideration		$ 20,000
Less: Book value
Cost of equipment	$ 70,000
Less: Accumulated depreciation ($70,000-$4,000)	$ 66,000
Book value		$ 4,000
Gain on sale		$ 16,000

Answer is B. $16,000 Gain

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ekkarill92 answered 1 year ago

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