An asset is purchased on January 1 for $45,700. It is expected to have a useful
ID: 2416118 • Letter: A
Question
An asset is purchased on January 1 for $45,700. It is expected to have a useful life of five years after which it will have an expected residual value of $6,200. The company uses the straight-line method. If it is sold for $32,400 exactly two years after it is purchased, the company will record a:
gain of $2,500.
loss of $10,800.
loss of $2,500.
gain of $10,800.
An asset is purchased on January 1 for $45,700. It is expected to have a useful life of five years after which it will have an expected residual value of $6,200. The company uses the straight-line method. If it is sold for $32,400 exactly two years after it is purchased, the company will record a:
Explanation / Answer
Solution:
Book value = Original cost of asset - Accumulated depreciation If the book value is more than the price received for the asset, there is a loss by that amount. If the book value is less than the price received there is a gain by that amount. Depreciation = Cost - Residual Value / useful life Depreciation = $45,700 - $6,200/ 5 Depreciation = $39,500/ 5 = $7,900 Book value = Original cost of asset - Accumulated depreciation Book value = $45,700 - $7,900 Book value = $31,600 Sales = $32,400 Loss on Sale of Asset = Book Value - Sales $32,400 - $31,600 = $800 As the book value is less than the price received for the asset, there is a gain of $800.Related Questions
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