Alliance Products purchased equipment that cost $120,000.It had an estimated useful life of four years and no residual value.The equipment was depreciated by the straight-line method and was sold at the end of the third year of use for $25,000 cash.Alliance should record:

Question

Quizplus · Accepted Answer

Using the straight-line method, the annual depreciation expense would be $30,000 ([$120,000 cost - $0 residual value] ÷ 4 years). After three years, the accumulated depreciation would be $90,000 ($30,000/year x 3 years). Therefore, the carrying amount or book value of the equipment would be $30,000 ($120,000 cost - $90,000 accumulated depreciation).

Since the equipment was sold for $25,000 cash, there is a loss on the sale of $5,000 ($25,000 sale price - $30,000 carrying amount). Therefore, the correct answer is B) A loss of $5,000.

Alliance Products Purchased Equipment That Cost $120,000