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An asset was acquired on August 1, 2021, for $37,000 with an estimated five-year life and $3,100 residual value
An asset was acquired on August 1, 2021, for $37,000 with an estimated five-year life and $3,100 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on April 30, 2023, for $20,000. Partial-year depreciation is calculated based on the number of months the asset is in service ?
Expert Solution
Computation of Gain or Loss on Sale of Asset:
Given,
Cost of the Asset = $37,000
Residual value = $3,100
Estimated useful life = 5 years
Depreciation under Straight line method = (Cost of Asset - Residual value) / Estimated useful life
= (37,000 - 3,100) / 5 years
= 33,900 / 5
= $6,780 per year
Number of months used in year 2021 (August 1 to December 31)= 5 months
Depreciation charged for year 2021 = $4,680 * (5 months/12 months)
= $6,780 * (5/12)
= $2,825
Number of months used in year 2022 (January 1 to December 31)= 12 months
Depreciation charged for year 2022 = $6,780 * (12 months/12 months)
= 6,780 * (12/12)
= $6,780
Number of months used in year 2023 (January 1 to April 30)= 4 months
Depreciation charged for year 2023 = $6,780 * (4 months/12 months)
= 6,780 * (4/12)
= $2,260
Accumulated Depreciation till April 30,2023 = $2,825+$6,780+$2,260 = $11,865
Book value of Asset on April 30,2023 = Cost of Asset - Accumulated depreciation
= $37,000 - $11,865
= $25,135
Sale price of Asset (Given)= $20,000
Gain or Loss on Sale of Asset = Book value - Sale value
= $25,135 - $20,000
= $5,135 (Loss)
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