Gorham Company has equipment with an original cost of $250,000 and accumulated depreciation of $140,000.If the equipment was sold it would generate a $15,000 Gain.What is the current fair value of the equipment?

Question

Quizplus · Accepted Answer

To find the current fair value of the equipment, we need to add the accumulated depreciation to the sale price (or proceeds) and compare it to the original cost.

Original cost = $250,000 
Accumulated depreciation = $140,000

This gives us a net book value (NBV) of the equipment:

NBV = Original cost - Accumulated depreciation 
NBV = $250,000 - $140,000 
NBV = $110,000

Now, we know that the equipment would generate a $15,000 gain if it were sold. Therefore, the sale price (or proceeds) must be:

Sale price = NBV + Gain 
Sale price = $110,000 + $15,000 
Sale price = $125,000

So, the current fair value of the equipment is $125,000.

Therefore, the correct answer is D) $125,000.

Gorham Company Has Equipment with an Original Cost of $250,000