During 2020, Jersey Ltd. sold equipment that had originally cost $206,000 for $127,600. This resulted in a gain of $9,600. The balance in the Accumulated Depreciation-Equipment was $660,000 on January 1, 2020, and $630,000 on December 31, 2020. No other equipment was disposed of during 2017. Depreciation expense for 2020 was

Question

Quizplus · Accepted Answer

To calculate the depreciation expense for 2020, we need to find the equipment's book value on December 31, 2020.

Book value on January 1, 2020 = Cost - Accumulated Depreciation = $206,000 - $660,000 = $454,000
Book value on December 31, 2020 = Book value on January 1, 2020 - Depreciation expense for 2020
Gain on sale of equipment = Sale price - Book value = $127,600 - $206,000 = -$78,400 (negative because there was a gain)

We can use the gain on sale of equipment to find the amount of depreciation expense for 2020:

Gain on sale of equipment = Sale price - Book value
-$78,400 = $127,600 - Book value
Book value = $206,000 - $78,400 = $127,600

Book value on December 31, 2020 = Book value on January 1, 2020 - Depreciation expense for 2020
$127,600 = $454,000 - Depreciation expense for 2020
Depreciation expense for 2020 = $326,400

However, we need to adjust this amount to account for the change in accumulated depreciation during 2020. The accumulated depreciation decreased by $30,000 during 2020 ($660,000 - $630,000), which means that depreciation expense was $30,000 less than it would have been if accumulated depreciation had not changed. Therefore:

Depreciation expense for 2020 = $326,400 - $30,000 = $296,400
Depreciation expense for 2020 = $58,000

So the best choice is B: $58,000.