Strawberry Fields purchased a tractor at a cost of $40,000 and sold it two years later for $25,600. Strawberry Fields recorded depreciation using the straight-line method, a five-year service life, and an $6,000 residual value. 1. What was the gain or loss on the sale

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Business

Max Mendoza

14 January, 00:26

Strawberry Fields purchased a tractor at a cost of $40,000 and sold it two years later for $25,600. Strawberry Fields recorded depreciation using the straight-line method, a five-year service life, and an $6,000 residual value. 1. What was the gain or loss on the sale

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Alisa Howard · Answer 1

The gain on sale of asset is of $800

Explanation:

The depreciation of the asset is computed as:

Annual depreciation = Original Cost - Estimated residual value / Useful life of the asset

= $40,000 - $6,000 / 5

= $34,000 / 5

= $6,800 per year

So, the depreciation for 2 years will be $13,600 ($6,800 + $6,800).

After 2 years, the value of the asset will be:

= Cost - Depreciation for 2 years

= $40,000 - $13,600

= $26,400

Now, we will compute the gain or loss on sale as:

Gain or loss on sale = The value of asset after 2 years - Sale value

= $26,400 - $25,600

= $800 (Gain).

So, there is gain of $800 on sale of the assets after 2 years.