Question

Equipment was purchased at a cost of $78,000. The equipment had an estimated useful life of five years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 4 for $8,000, which of the following will be included in the journal entry? (Assume the straight-line depreciation method.)

Answer 1

A loss on sale is $10,000.

Explanation:

Consider the provided information.

Equipment was purchased at a cost of $78,000. The equipment had an estimated useful life of five years and a residual value of $3,000.

`\text{Depreciation expense}=\frac{\text{(Cost-Residual)}}{\text{Useful life}}`

Substitute the respective values.

`\text{Depreciation expense}=(78,000-3,000)/(5)`

`\text{Depreciation expense}=15,000`

The book value as date of sale =
`78,000-(15,000*4)=18,000`

The equipment was sold at the end of Year 4 for $8,000,

Therefore, the total loss = ($18,000-$8,000) = $10,000

Hence, a loss on sale is $10,000.