Exhibit 11-03 On January 1, 2014, Wheeler, Inc. purchased some equipment for $3,900. The equipment had an estimated life of five years and an expected residual value of $200. On July, 1, 2016, the equipment was sold for $1,000.
-Refer to Exhibit 11-03, what was the amount of the loss or gain recognized in the sale?

Question

Quizplus · Accepted Answer

To determine the gain or loss on disposal, we need to calculate the equipment's book value at the time of sale. The book value is calculated as the original cost minus accumulated depreciation. Straight-line depreciation is calculated as ($3,900 - $200) / 5 = $740 per year. As of July 1, 2016, the accumulated depreciation is $740/year x 2.5 years = $1,850. Therefore, the book value of the equipment at the time of sale is $3,900 - $1,850 = $2,050. Since the equipment was sold for $1,000, there was a loss of $2,050 - $1,000 = $1,050. Hence, the answer is C.

Exhibit 11-03 on January 1, 2014, Wheeler, Inc