Peterson Company purchased machinery for $160,000 on January 1, 2007.Straight-line depreciation has been recorded based on a $10,000 salvage value and a 5-year useful life.The machinery was sold on May 1, 2011 at a gain of $3,000.How much cash did Peterson receive from the sale of the machinery?

Question

Quizplus · Accepted Answer

Step 1: Calculate the annual depreciation
Cost - Salvage value = depreciable cost
$160,000 - $10,000 = $150,000
Depreciable cost / Useful life = annual depreciation
$150,000 / 5 = $30,000 per year

Step 2: Calculate the accumulated depreciation on May 1, 2011
Annual depreciation x Number of years = accumulated depreciation
$30,000 x 4 = $120,000

Step 3: Calculate the book value on May 1, 2011
Cost - Accumulated depreciation = Book value
$160,000 - $120,000 = $40,000

Step 4: Calculate the cash received from the sale
Sale price - Book value = Gain or loss
Sale price - $40,000 = $3,000 gain
Sale price = $43,000

Therefore, Peterson received $33,000 in cash from the sale of the machinery.

Peterson Company Purchased Machinery for $160,000 on January 1, 2007