Question

On June 1, 2016, XYZ Company paid $375,000 to purchase land, a building,
and some equipment. The market value of these assets on that date were:
land $68,000; building $220,000; equipment $112,000. The equipment was
assigned a useful life of 15 years and a $6,000 residual value. The
equipment will be depreciated using the straight-line method.

On November 30, 2023, XYZ Company sold the equipment for $39,300 cash.

Calculate the amount of the loss recorded on the sale of the equipment.

Answer 1

Answer:

Total Market Value = Land + Building + Equipment
Total Market Value = $68,000 + $220,000 + $112,000
Total Market Value = $400,000

Book Value of Equipment = $375,000 * $112,000 / $400,000
Book Value of Equipment = $375,000 * $0.28
Book Value of Equipment = $105,000

Depreciation per year = (Cost – Residual Value) / Useful Life
Depreciation per year = ($105,000 - $6,000) / 15years
Depreciation per year = $99,000 / 15
Depreciation per year = $6,600

Accumulated Depreciation on the Date of Sale = $6,600 * 7.5
Accumulated Depreciation on the Date of Sale = $49,500

Book Value on the Date of Sale = $105,000 - $49,500
Book Value on the Date of Sale = $55,500

Amount of Gain/loss on Sale = Sale Value of Equipment– Book Value on the Date of Sale
Amount of Gain/loss on sale = $39,900 - $55,500
Amount of Gain/loss on Sale = -$15,600 loss

Since the book value on date of sale is more than the sale value of the equipment so there is a loss at the time of sale of equipment.