The Cromwell Company sold equipment for $35,000. The equipment, which originally cost $120,000 and had an estimated useful life of 10 years and $20,000 residual value, was depreciated for four years using the straight-line method. Cromwell should report the following on its income statement in the year of sale:

A. A $25,000 gain.

B. A $45,000 loss.

C. A $45,000 gain.

D. All of these answer choices are incorrect.

Question

Business

Sergio Roth

20 February, 14:29

The Cromwell Company sold equipment for $35,000. The equipment, which originally cost $120,000 and had an estimated useful life of 10 years and $20,000 residual value, was depreciated for four years using the straight-line method. Cromwell should report the following on its income statement in the year of sale:

A. A $25,000 gain.

B. A $45,000 loss.

C. A $45,000 gain.

D. All of these answer choices are incorrect.

+2

Answers (1)

Know the Answer?

Ali Schaefer · Answer 1

B

Explanation:

Original Cost - $120,000

Useful life - 10 years

Residual Value - $20000

Annual depreciation - $ (120,000-20000) / 10 = $10,000

Accumulated depreciation for 4 years = 10*4 = $40000

Book value at disposal = $120,000-$40000 = $80000

Sales value = $35,000

Loss on disposal = $80,000-$35000 = $45,000