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Bowie Company uses a calendar year and the straight line depreciation method. On December 31, 2018, after adjusting entries were posted, Bowie Company sold a machine which was originally purchased on January 1, 2015. The historical cost was $24,000, the salvage value assumed was $2,000 and the original estimated life was five years.. It was sold for $4,400 cash. Using this information, how much should be recorded on December 31 for the Gain or (Loss)? Round to whole dollars.

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Answer:

There is no gain or loss as the sale value ie equal to the net book value

Explanation:

Computation of gain or loss on disposal of equipment

Historical cost of machine                                        $ 24,000

Less: Estimated salvage value                                 $   2,000

Depreciable basis                                                      $ 22,000

Estimated useful life                                                     5 years

Depreciation cost per year $ 22,000/5                   $ 4,400

Depreciation charged for the period

January 1 2015 to December 31 2018 = 4 years

$ 4,400 * 4 years                                                       $ 17,600

Net book value of machine on date of sale

$ 22,000 - $ 17,600                                                   $  4,400

Sale value of machine                                               $   4,400

Gain or Loss                                                                         0          

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