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24 April, 21:06

On May 1 of the current year, La Presa Company sells some equipment for $25,000. The original cost was $50,000, the estimated salvage value was $5,000, and the expected useful life was 5 years. Straight-line depreciation is used. On January 1 of the current year, the Accumulated Depreciation account had a balance of $18,000. How much is the gain or loss on the sale?

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  1. 24 April, 22:23
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    The loss on sale is $ 4,000.

    Explanation:

    Loss or gain on an Asset can be determined by this formula:

    Loss or gain = Disposal/Consideration price - Book Value of Asset.

    Determining book value.

    Book Value of Asset = Acquisition cost - Accumulated depreciation.

    Acquisition cost is 50,000.

    Annual depreciation expense = Depreciation base/Number of years.

    (50,000 - 5,000) / 5 = 9,000

    Accumulated depreciation is 18,000 + (9000 * 4/12) = 21,000.

    Therefore book value of asset = 50,000 - 21,000.

    Book Value of Asset = 29,000.

    Disposal/Consideration price = 25,000

    Determining loss or gain on asset disposal.

    Loss or gain = Disposal/Consideration price - Book Value of Asset.

    Loss or gain = 29,000 - 32,000.

    Loss on sale was = 4,000.
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