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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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  1. 14 January, 03:51
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    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.
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