Question

Company A purchases a stamping press on July 1, 2020. The press cost $53,000 and management estimates its salvage value and useful life to be $3,000 and 5 years, respectively. TC recognizes depreciation on a straight-line basis and sells the equipment on January 1, 2023 for $11,000. Instructions Compute the following amounts:

1. Total depreciation expense - 2020 $

2. Total depreciation expense - 2021 $

3. Accumulated depreciation - 12/31/2022 $

4. Net book value of the stamping press - 12/31/2022 $

5. Gain (loss) on sale - 1/1/2023 $

6. Gain (loss) on sale assuming a sales price of $0 $

Answer 1

Cost of stamping press = $53,000

Purchase date = July 1, 2020

Salvage value = $3,000

Estimated useful life = 5 years

Annual depreciation expense = (Cost of stamping press - Salvage value)/Estimated useful life

= (53,000-3,000)/5

= $10,000

1.

Total depreciation expense for 2020 = Annual depreciation expense x 6/12

= 10,000 x 6/12

= $5,000

2.

Total depreciation expense for 2021 = Annual depreciation expense

= $10,000

3.

Accumulated depreciation 12/31/2022 = Total depreciation expense for 2020 + Total depreciation expense for 2021 + Total depreciation expense for 2022

= 5,000+10,000+10,000

= $25,000

4.

Net book value of the stamping press at 12/31/2022 = Cost of stamping press - Accumulated depreciation 12/31/2022

= 53,000-25,000

= $28,000

5.

Sale price of equipment = $11,000

Loss on sale of stamping press = Net book value of the stamping press at 12/31/2022 - Sale price

= 28,000-11,000

= $17,000

6.

Sale price of equipment = $0

Loss on sale of stamping press = Net book value of the stamping press at 12/31/2022 - Sale price

= 28,000-0

= $28,000