Great Farms Company sold some fully depreciated equipment for $4,100 cash. The equipment had been purchased for $49,600, and the company had estimated the useful life at 8 years and a residual value at $5,600. How will this sale affect Retained Earnings?

Question

Quizplus · Accepted Answer

The equipment was fully depreciated, meaning its book value was $0. The sale of the equipment for $4,100 results in a gain of $4,100, which increases Retained Earnings. However, the original cost minus the residual value ($49,600 - $5,600 = $44,000) was depreciated, so the net effect is a decrease of $1,500 in Retained Earnings.

Great Farms Company Sold Some Fully Depreciated Equipment for $4,100