Morganstern Company purchased machinery for $320,000 on January 1, 2004.Straight-line depreciation has been recorded based on a $20,000 salvage value and a 5-year useful life.The machinery was sold on May 1, 2008 at a gain of $6,000.How much cash did Morganstern receive from the sale of the machinery?

Question

Quizplus · Accepted Answer

To calculate the amount of cash Morganstern received from the sale of the machinery, we need to first determine the book value of the machinery on May 1, 2008. The annual depreciation expense is ($320,000 - $20,000) / 5 = $60,000. The accumulated depreciation as of May 1, 2008 is $60,000 x 4 = $240,000. The book value of the machinery on May 1, 2008 is therefore $320,000 - $240,000 = $80,000.

Since the machinery was sold at a gain of $6,000, the sale price must have been $80,000 + $6,000 = $86,000. Therefore, the amount of cash Morganstern received from the sale of the machinery is $86,000.

The correct answer is C.

Morganstern Company Purchased Machinery for $320,000 on January 1, 2004