Computing Depreciation, Net Book Value, and Gain or Loss on Asset Sale Sloan Com

Question

Computing Depreciation, Net Book Value, and Gain or Loss on Asset Sale

Sloan Company owns an executive plane that originally cost $920,000. It has recorded straight-line

depreciation on the plane for seven full years, calculated assuming an $80,000 expected salvage value

at the end of its estimated 10-year useful life. Sloan disposes of the plane at the end of the seventh year.

a. At the disposal date, what is the...

(1) cumulative depreciation expense and

(2) net book value of the plane?

b. How much gain or loss is reported at disposal if the sales price is:

1. A cash amount equal to the plane’s net book value.

2. $195,000 cash.

3. $600,000 cash.

Explanation / Answer

Solution:

a. Purchase price of plane 920,000 Less: Salavage value 80,000 Value to be depreciated 840,000 Number of years 10 Depreciation per year          84,000 Depreciation expense 840,000 Net book value of asset 80,000 b. 1 No profit no loss 2 Book value 80,000 Sale value 195,000 Gain on disposal 115,000 3 Book value 80,000 Sale value 600,000 Gain on disposal 520,000

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