On April 1, 2017, La Presa Company sells some equipment for $18,000. The original cost was $50,000, the estimated salvage value was $8,000, and the expected useful life was 6 years. On December 31, 2016, the Accumulated Depreciation account had a balance of $29,400. How much is the gain or loss on the sale?

The loss on sales of equipment is : $850

Explanation:

Depreciation expenses per year for the equipment is: (Original cost - Salvage value) / expected useful life = (50,000 - 8,000) / 6 = 7,000

Depreciation expenses per month for the equipment is: Depreciation expenses per year for the equipment/12 = 7,000/12

3-month depreciation expenses for the equipment from December 31,2016 to 31st March 2017 = 3 x 7,000/12 = 1,750

Accumulated depreciation as at April 1 2017 (the time of equipment disposal) = Accumulated Depreciation account as at December 31st 2016 + 3-month depreciation expenses for the equipment from December 31,2016 to 31st March 2017 = 29,400 + 1,750 = 31,150

Net book value of the equipment = Original cost - Accumulated depreciation as at April 1 2017 = 50,000 - 31,150 = 18,850

Gain / (loss) on equipment disposal = Selling price - Net book value of the equipment = 18,000 - 18,850 = $ (850)

=> Thus, the loss on sales of equipment is $850.