Equipment purchased on January 3, 2008, for$80,000 was depreciated using the straight-line method based upon a 5-year life and $7,500 residual value. The equipment was sold on December 31, 2010, for $40,000. What is the gain on the sale of the equipment? Prepare the journal entry. A. $3,500 C. $36,500 B. $14,500 D. $43,500
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A. $3,500 C. $36,500
B. $14,500 D. $43,500
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