Alexander Company purchased a piece of equipment for $14,000 and depreciated it for three years over a 5-year estimated life with an expected residual value at the end of 5 years of $2,000. At the end of the third year, Alexander decided to upgrade to equipment with increased capacity and sold the original piece of equipment for $7,500. Calculate the gain or loss on the disposal at the end of the third year. on sale by
Alexander Company purchased a piece of equipment for $14,000 and depreciated it for three years over a 5-year estimated life with an expected residual value at the end of 5 years of $2,000. At the end of the third year, Alexander decided to upgrade to equipment with increased capacity and sold the original piece of equipment for $7,500. Calculate the gain or loss on the disposal at the end of the third year. on sale by
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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ACCT 102
Transcribed Image Text:Alexander Company purchased a piece of equipment for $14,000 and depreciated it for three years over a 5-year estimated life with
an expected residual value at the end of 5 years of $2,000. At the end of the third year, Alexander decided to upgrade to equipment
with increased capacity and sold the original piece of equipment for $7,500.
Calculate the gain or loss on the disposal at the end of the third year.
on sale by
Transcribed Image Text:During the past several years the annual net income of Avery Company has averaged $540,000. At the present time the company is
being offered for sale. Its accounting records show the book value of net assets (total assets minus all liabilities) to be $2,800,000. The
fair value of Avery's net identifiable assets, however, is $3,000,000.
An investor negotiating to buy the company offers to pay an amount equal to the fair value for the net identifiable assets and to
assume all liabilities. In addition, the investor is willing to pay for goodwill an amount equal to the above-average earnings for three
years.
On the basis of this agreement, what price should the investor offer? A normal return on the fair value of net assets in this industry is 15
percent.
Price to be offered for Avery Company
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