On May 1, 2010, Pinkley Company sells office furniture for $90,000 cash. The office furniture originally cost $225,000 when purchased on January 1, 2003. Depreciation is recorded by the straight-line method over 10 years with a salvage value of $22,500. What gain should be recognized on the sale?

Question

Quizplus · Accepted Answer

To calculate the gain on the sale of the office furniture, we need to determine its book value.

Cost of office furniture = $225,000
Depreciation per year = (Cost - Salvage Value) / Useful Life 
Depreciation per year = ($225,000 - $22,500) / 10 = $20,250

Depreciation as of May 1, 2010 (date of sale) = Depreciation per year x Number of years 
Depreciation as of May 1, 2010 = $20,250 x 7 = $141,750

Book value as of May 1, 2010 = Cost - Accumulated Depreciation 
Book value as of May 1, 2010 = $225,000 - $141,750 = $83,250

Gain on sale = Selling price - Book value 
Gain on sale = $90,000 - $83,250 = $6,750

Therefore, the correct answer is B) $13,500.

On May 1, 2010, Pinkley Company Sells Office Furniture for $90,000