On July 1 2021 Fleming Company sells machinery for $240000.The machinery originally cost $600000 had an estimated 5-year life and an expected salvage value of $100000.The Accumulated Depreciation account had a balance of $350000 on January 1 2022 using the straight-line method.The gain or loss on disposal is
A)$40000 gain.
B)$10000 loss.
C)$20000 loss.
D)$10000 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 straight-line depreciation is ($600,000 - $100,000) / 5 = $100,000 per year. The machinery has been in use for 5 years, so the accumulated depreciation is $100,000 * 5 = $500,000. The book value is therefore $600,000 - $500,000 = $100,000. The gain on disposal is therefore $240,000 - $100,000 = $40,000.

On July 1 2021 Fleming Company Sells Machinery for $240000