XYZ purchased a spray painter at the beginning of 2006 at a cost of $150,000. XYZ estimated that the spray painter would last five years and have a residual value of $30,000. The company decided to use straight-line depreciation. Two years later, at the end of 2007, XYZ sold the spray painter for $100,000.

Required:

a. Show the effects of the purchase, sale and annual depreciation on the basic accounting equation. (The basic accounting equation is introduced on page 34 of the textbook. Page 39, Exhibit 2-2 shows an example of several transactions.)

b. Calculate the book value of the spray painter at the end of 2006 and the end of 2007, prior to the sale.

c. Calculate the gain or loss on the sale of the spray painter.

d. Calculate the income statement effect, assuming that XYZ instead decided to give the spray painter to a charitable foundation.