Langley Corporation sold equipment that it purchased for $300,000 four years ago. Langley...
Question:
Langley Corporation sold equipment that it purchased for {eq}\$300,000 {/eq} four years ago. Langley purchased the equipment by paying {eq}\$100,000 {/eq} down and signing a note payable for {eq}\$200,000 {/eq}. As of the date of the sale, Langley Corporation had claimed {eq}\$187,500 {/eq} in accumulated depreciation and it had made {eq}\$50,000 {/eq} in principal payments on the note payable. Langley received {eq}\$80,000 {/eq} cash and a note receivable for {eq}\$100,000 {/eq} from the purchaser in addition to the purchaser assuming Langley Corporation's {eq}\$150,000 {/eq} note payable. What is Langley Corporation's realized gain or loss on the sale of the equipment?
a) {eq}\$330,000 {/eq}.
b) {eq}\$187,500 {/eq}.
c) {eq}\$67,500 {/eq}.
d) {eq}\$217,500 {/eq}.
e) {eq}\$112,500 {/eq}.
Gain or Loss on the Sale of an Asset:
Long-term assets are generally carried on the balance sheet at their historic cost minus accumulated depreciation, or at their book value. When an asset is sold for an amount other than this book value, the difference is called gain or loss on sale.
Answer and Explanation: 1
The correct option is d).
- The gain or loss on the sale of a long-term asset is the difference between the asset's book value and the proceeds received from the sale.
- The book value of the equipment on the date of the sale was $300,000 cost - $187,500 accumulated depreciation = $112,500.
- The proceeds on the sale were $80,000 cash + $100,000 note receivable + $150,000 liabilities transferred = $330,000.
Langley's gain is, therefore:
| Prcceds received | $330,000 |
| Book value of the equipment | (112,500) |
| Gain on sale of the equipment | $217,500 |
|---|
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How to Account for Asset Disposal
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Chapter 9 / Lesson 10
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This lesson provides an overview on how to account for the disposal of capital assets. Learn about the value of an asset, as well as how to account for asset sales, retirement, and exchanges.
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