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20 July, 14:34

Equipment was acquired on January 1, 2021, for $30,000 with an estimated four-year life and $3,000 residual value. The company uses straight-line depreciation. Record the gain or loss if the equipment was sold on December 31, 2023, for $10,300.

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  1. 20 July, 15:38
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    Given that,

    Acquired value of equipment on January 1, 2021 = $30,000

    Useful life = 4 years

    Residual value = $3,000

    Equipment was sold on December 31, 2023 = $10,300

    Company uses straight-line depreciation,

    Annual Straight line depreciation:

    = (Value of equipment - Residual value) : useful life

    = ($30,000 - $3,000) : 4 year

    = $6,750

    Total accumulated depreciation from 1 Jan 2021 to 31 Dec 2023:

    = No. of years * Annual Straight line depreciation

    = 3 years * $6,750

    = $20,250

    Book value at time of sale:

    = Value of equipment - Total accumulated depreciation

    = $30,000 - $20,250

    = $9,750

    Therefore, the selling value of equipment is larger than the book value. Hence, there is a gain on sale as follows:

    = Selling value - Book value

    = $10,300 - $9,750

    = $550

    The journal entry is as follows:

    On December 31, 2023

    Cash A/c Dr. $10,300

    Accumulated Depreciation - equipment A/c Dr. $20,250

    To Gain on sale $550

    To equipment $30,000

    (To record the gain on sale)
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