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20 November, 12:00

The Cromwell Company sold equipment for $35,000. The equipment, which originally cost $120,000 and had an estimated useful life of 10 years and $20,000 residual value, was depreciated for four years using the straight-line method. Cromwell should report the following on its income statement in the year of sale:

A. A $25,000 gain.

B. A $45,000 loss.

C. A $45,000 gain.

D. All of these answer choices are incorrect.

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Answers (1)
  1. 20 November, 15:53
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    B

    Explanation:

    Original Cost - $120,000

    Useful life - 10 years

    Residual Value - $20000

    Annual depreciation - $ (120,000-20000) / 10 = $10,000

    Accumulated depreciation for 4 years = 10*4 = $40000

    Book value at disposal = $120,000-$40000 = $80000

    Sales value = $35,000

    Loss on disposal = $80,000-$35000 = $45,000
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