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On January 1, Year 1, Jing Company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value.

-Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash expenses in Year 3.The company uses the straight-line method.The office equipment was sold on December 31,Year 3 for $16,000.What is the company's net income (loss)for Year 3?
A)($6,600)
B)$6,600
C)$600
D)$5,400

Question

[The following information applies to the questions displayed below.]

On January 1, Year 1, Jing Company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value.

-Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash expenses in Year 3.The company uses the straight-line method.The office equipment was sold on December 31,Year 3 for $16,000.What is the company's net income (loss)for Year 3?
A)($6,600)
B)$6,600
C)$600
D)$5,400

Quizplus · Accepted Answer

Annual depreciation expense = (Cost of $36,000 - Salvage value of $12,000 )÷ 5 years = $4,800
Book value at end of Year 3 = Cost of $36,000 -Accumulated depreciation of (3 years × $4,800)= $21,600
Gain (loss)on sale = Proceeds from sale of $16,000 - Book value of $21,600 = ($5,600)
Net income = Revenue of $30,000 - Cash expenses of $19,000 - Depreciation expense of $4,800 - Loss on sale of $5,600 = $600

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