Answer:
The answer is B.
Explanation:
Straight line method of depreciation is:
Cost of the asset minus salvage value/number of years
Cost of the machine is $90,000
Salvage value is $0
Number of useful life is 10 years
So we have,
90,000/10
Depreciation = $9,000
So $9,000 will bee charged yearly($90,000 will be reducing by $9,000 yearly).
The number of years from January 2 year 1 through July 1 year 10 is 9 years and 6months
6 months is half a year.
Depreciation to be recognized is;
9 x $9000 + 9000/2(half a year)
$81,000 + $4,500
$85,500
Therefore, the carrying value of the asset at July 1, year 10 is
$90,000 - $85,500
$4,500
The machine was sold for $5,000.
The sales price is greater than carrying amount at the time of sale. This means that there is a gain
So the gain is $5,000 - $4,500
Gain of $500
