On January 1, year 7 Brown Company sold a building that cost $185,000 and which
ID: 2674747 • Letter: O
Question
On January 1, year 7 Brown Company sold a building that cost $185,000 and which had an accumulated depreciation of $65,000 on the date of sale. Brown received as consideration a $175,000 non-interest bearing note due on January 1, Year 10. There was no established price for the building and the note has no ready market. The prevailing rate of interest for a note of this type on January 1, Year 7 is 9%. Brown Company reported:$_________Gain on the sale of the building OR
$_________Loss on the sale of the building
Explanation / Answer
So the balance sheet can be calculated like this building that cost $185,000 again accumulated depreciation of $65,000 Brown received as consideration a $175,000 non-interest bearing note due on January 1, Year 10 9% actual cost of building = $185,000-$65,000 =120,000 present value of note at r =0.09 = 175,000/(1+0.09)^3 =$135132.1 brown earned a profit of $135132.1 - 120,000 = $15132.1