Question

Shen Systems purchased equipment four years ago at a cost of $218,000. The equipment is valued at $97,400 on today's balance sheet but could actually be sold for $92,900. What is the loss in value of the equipment?

1) $5,500
2) $20,600
3) $25,500
4) $30,100

Answer 1

The loss in value of the equipment is $218,000 (purchase price) - $92,900 (sale price) = $125,100, which differs from the balance sheet valuation.

Step-by-step explanation:

The loss in value of the equipment is calculated by taking the original purchase price and subtracting the current potential sale price. Shen Systems purchased the equipment at $218,000 and could sell it today for $92,900. Therefore, the loss in value would be $218,000 - $92,900 = $125,100. The value on the balance sheet is $97,400, which is an accounting measure of the value of the equipment that incorporates depreciation.

The difference between the balance sheet value and the actual sale price is $97,400 - $92,900 = $4,500, which is not one of the provided answer options and seems to be irrelevant to the primary calculation of the loss in value of the equipment.