Sutherland Company purchased machinery for $320,000 on January 1, 2007.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, 2011 at a gain of $6,000.How much cash did Sutherland receive from the sale of the machinery?

Question

Quizplus · Accepted Answer

The machinery was purchased for $320,000 and had a salvage value of $20,000, which meant that the depreciable cost was $300,000 ($320,000 - $20,000). Using straight-line depreciation, the annual depreciation expense would be $60,000 ($300,000 ÷ 5 years). From January 1, 2007 to May 1, 2011 (the day of sale) there are 4 years and 4 months of depreciation, or 52 months. Thus, the accumulated depreciation would be $240,000 ($60,000 x 4) + ($2,000 x 4), where $2,000 is the additional depreciation for the partial year. The carrying value of the machinery is $60,000 ($300,000 - $240,000). The gain on the sale is $6,000, thus the cash received would be $66,000 ($60,000 + $6,000). Therefore, the best answer is C.

Sutherland Company Purchased Machinery for $320,000 on January 1, 2007