A company purchased equipment for $100,000 that is expected to have a useful life of 10...

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A company purchased equipment for $100,000 that is expected tohave a useful life of 10 years and no salvage value. The companysold the equipment at the end of the fourth year of its usefullife, at which point it had fair market value of $65,000. If theasset was sold for $55,000 and was being depreciated using thestraight line method as was reported at book value, what amount ofgain or loss would be reported at the time of thesale?
$10,000 gain
$5,000 loss
no gain or loss would be reported.

Answer & Explanation Solved by verified expert

3.8 Ratings (669 Votes)

$5,000 loss

Working:

Straight line depreciation	=	(Cost - Salvage Value)/Useful life
	=	(100000-0)/10
	=	$ 10,000

Accumulated depreciation at the end of fourth years	=	Straight line depreciation	x	4
	=	$ 10,000	x	4
	=	$ 40,000

Book value at the end of 4th year	=	Cost	-	Accumulated depreciation
	=	$ 1,00,000	-	$ 40,000
	=	$ 60,000

Calculation of gain or loss on sale of equipment:

Sales value		$ 55,000

Less book value of equipment		$ 60,000

Loss on sale of equipment		$ 5,000

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Transcribed Image Text

A company purchased equipment for $100,000 that is expected tohave a useful life of 10 years and no salvage value. The companysold the equipment at the end of the fourth year of its usefullife, at which point it had fair market value of $65,000. If theasset was sold for $55,000 and was being depreciated using thestraight line method as was reported at book value, what amount ofgain or loss would be reported at the time of thesale? $10,000 gain$5,000 lossno gain or loss would be reported.