On July 1, 2014, Fleming Company sells machinery for $120,000. The machinery originally cost $300,000, had an estimated 5-year life and an expected salvage value of $50,000. The Accumulated Depreciation account had a balance of $175,000 on January 1, 2014, using the straight-line method. The gain or loss on disposal is
A) $20,000 gain.
B) $5,000 loss.
C) $10,000 loss.
D) $5,000 gain.

Question

Quizplus · Accepted Answer

The gain on disposal is calculated as the difference between the selling price and the book value of the machinery. The book value is calculated as the original cost minus the accumulated depreciation. The accumulated depreciation is calculated as the straight-line depreciation multiplied by the number of years the machinery has been in use. In this case, the accumulated depreciation is $175,000 and the number of years the machinery has been in use is 3.5 years. Therefore, the book value of the machinery is $300,000 - $175,000 = $125,000. The gain on disposal is therefore $120,000 - $125,000 = $5,000.

On July 1, 2014, Fleming Company Sells Machinery for $120,000