Bobby Jenks Company purchased machinery for $160,000 on January 1, 2004.Straight-line depreciation has been recorded based on a $10,000 salvage value and a 5-year useful life.The machinery was sold on May 1, 2008 at a gain of $3,000.How much cash did Bobby Jenks receive from the sale of the machinery?

Question

Quizplus · Accepted Answer

To find the cash received from the sale of machinery, we need to first calculate the book value of the machinery on May 1, 2008.
Depreciation per year = ($160,000 - $10,000) / 5 years = $30,000 per year
Accumulated Depreciation as of May 1, 2008 = $30,000 x 4 years = $120,000
Book value as of May 1, 2008 = $160,000 - $120,000 = $40,000
Since the sale resulted in a gain of $3,000, the selling price must have been $43,000 ($40,000 + $3,000).
Therefore, Bobby Jenks received $33,000 in cash from the sale ($43,000 - $10,000 salvage value). 
The correct answer is C.

Bobby Jenks Company Purchased Machinery for $160,000 on January 1