Jamison Company reports depreciation expense of $35,000 for Year 2. Also, equipment costing $140,000 was sold for a $5,000 gain in Year 2. The following selected information is available for Jamison Company from its comparative balance sheet. Compute the cash received from the sale of the equipment.
A)$23,000.
B)$35,000.
C)$38,000.
D)$40,000.
E)$67,000.

Question

Jamison Company reports depreciation expense of $35,000 for Year 2. Also, equipment costing $140,000 was sold for a $5,000 gain in Year 2. The following selected information is available for Jamison Company from its comparative balance sheet. Compute the cash received from the sale of the equipment. 
A)$23,000. 
B)$35,000. 
C)$38,000. 
D)$40,000. 
E)$67,000.

Quizplus · Accepted Answer

The gain on the sale of equipment is calculated as follows: 
Sale price = Cost + Gain 
Sale price = Cost + (Sale price - Cost) 
Sale price = Cost + (Gain) 
$140,000 + $5,000 = $145,000 
Therefore, the sale price of the equipment is $145,000. 
Since there is a gain on the sale, the cash received will be the sale price minus the book value (cost less accumulated depreciation). The book value of the equipment is: 
Cost - Accumulated Depreciation = Book Value 
$140,000 - $35,000 = $105,000 
Therefore, the cash received from the sale of the equipment is: 
Sale Price - Book Value 
$145,000 - $105,000 = $40,000.

Jamison Company Reports Depreciation Expense of $35,000 for Year 2