Sutherland Company purchased machinery for $960,000 on January 1, 2011. Straight-line depreciation has been recorded based on a $60,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2015 at a gain of $18,000. How much cash did Sutherland receive from the sale of the machinery?

Question

Quizplus · Accepted Answer

The accumulated depreciation for the machinery can be calculated as follows:
Total cost = $960,000
Salvage value = $60,000
Depreciable cost = $960,000 - $60,000 = $900,000
Annual depreciation = $900,000 ÷ 5 = $180,000
Accumulated depreciation for 4 years (2011-2014) = $180,000 × 4 = $720,000

The book value of the machinery on May 1, 2015 can be calculated as follows:
Book value = Total cost - Accumulated depreciation
Book value = $960,000 - $720,000 = $240,000

Since the machinery was sold at a gain of $18,000, the selling price must be:
Selling price = Book value + Gain
Selling price = $240,000 + $18,000 = $258,000

Therefore, Sutherland received $258,000 cash from the sale of the machinery. The best choice is C).

Sutherland Company Purchased Machinery for $960,000 on January 1, 2011