Question

Equipment purchased on 06/01/22 for $560K (U/L = 5 years, S/V = 0, Straight-line depreciation). Sold on 09/01/24 for $323K. The sale will result in:

A) a gain of $15K
B) a loss of $13K
C) a loss of $27K
D) a gain of $17K

Answer 1

The sale of the equipment will result in a loss of $13K.

Step-by-step explanation:

To calculate the gain or loss from the sale of the equipment, we need to first determine the book value of the equipment. The book value is the original cost minus the accumulated depreciation. The equipment was purchased for $560K and has a useful life of 5 years with no salvage value, so the annual depreciation is $560K / 5 years = $112K.

The accumulated depreciation after 2 years (as of the time of sale) is $112K * 2 years = $224K. The book value is thus $560K - $224K = $336K.

Since the equipment was sold for $323K, there is a loss of $336K - $323K = $13K. Therefore, the answer is (C) a loss of $13K.