Question

25)an asset was acquired on january 1, 2021, for $15,000 with an estimated four-year life and $1,000 residual value. the company uses straight-line depreciation. calculate the gain or loss if the asset was sold on december 31, 2023, for $5,000.

Answer 1

Determining the depreciation expense is necessary before determining the gain or loss in order to estimate the asset's book value. The Answer is  $3,000 loss.

How to find the Calculation?

Determining the depreciation expense is necessary before determining the gain or loss in order to estimate the asset's book value.

Consequently, the depreciation expense under the straight-line technique would be

(Original cost - Remaining Value) (useful life)

= ($15,000 - $1,000) ÷ (4 years)

= ($14,000) ÷ (4 years)

= $3,500

The depreciation for the first two years would be

= $3,500 × 2 years

= $7,000

This approach uses the same depreciation rate for the entire remaining useful life.

The book value would now be.

= Asset's acquired value - total depreciation

= $15,000 - $7,000

= $8,000

Thus, the benefit would be

1 Sale price minus book price

= $5,000 - $8,000

= $3,000 loss.

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