On December 31,2013,Stable Company sold a piece of equipment that was purchased on January 1,2008.The equipment originally cost $820,000 and has an estimated useful life of eight years.Stable uses the straight-line method of depreciation.What is the gain/loss on the sale of equipment that Stable will recognize if the equipment was sold for $230,000?

Question

Quizplus · Accepted Answer

To calculate the gain or loss on the sale of equipment, we need to compare the equipment's book value (i.e., its original cost minus accumulated depreciation) to the sale price.

The equipment's original cost was $820,000, and since it has an estimated useful life of eight years, we can depreciate it by $820,000 / 8 = $102,500 per year using the straight-line method. As of December 31, 2013 (the sale date), the equipment had been used for six years (2008-2013), so the accumulated depreciation is 6 x $102,500 = $615,000. Therefore, the book value of the equipment is $820,000 - $615,000 = $205,000.

Since the equipment was sold for $230,000, Stable Company will recognize a gain of $230,000 - $205,000 = $25,000 on the sale of equipment. Thus, the correct answer is (C) $25,000 gain.

On December 31,2013,Stable Company Sold a Piece of Equipment That