On December 31, Strike Company sold one of its batting cages for $55,000. The equipment had an initial cost of $310,000 and has accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. What is the amount of the gain or loss on this transaction? a. loss of $55,000 b. loss of $5,000 c. gain of $5,000 d. gain of $55,000

The correct answer is:

gain of $5,000 (c.)

Explanation:

In order to determine, if a profit or loss was made on the batting cage, we will determine the salvage value of the equipment, and find the difference between this value and the selling price. This is done as follows:

Salvage value = initial cost - accumulated depreciation

Salvage value = 310,000 - 260,000 = $50,000

selling price = $55,000

since the selling price is greater than the salvage value of the equipment, a profit (gain) was made on the sale, and the gain is calculated as follows:

gain on sale = selling price - salvage value

= 55,000 - 50,000 = $5,000 gain.

c. gain of $5,000

Explanation:

Gain on the sale of asset can be calculated by comparing the book value of the equipment and disposal proceeds.

Book value of the equipment is the net of initial cost and accumulated depreciation.

Book value of equipment = Initial cost - Accumulated depreciation

Book value of equipment = $310,000 - $260,000

Book value of equipment = $50,000

Gain on the sale = Sales proceeds - Book value of equipment

Gain on the sale = $55,000 - $50,000

Gain on the sale = $5,000