A personal computer that originally cost $5,000 has no estimated salvage value and was depreciated at the rate of 20% a year. At the end of the third year, the computer was sold for $1,500 cash. The transaction would result in a
A) gain of $1,500.
B) loss of $1,500.
C) gain of $250.
D) loss of $250.

Question

Quizplus · Accepted Answer

The total depreciation over three years would be 20% x 3 = 60% of the original cost, which is $3,000. The adjusted basis for the computer would be $5,000 - $3,000 = $2,000. Since the computer was sold for only $1,500 cash, there is a loss of $500 ($1,500 - $2,000 = -$500). Therefore, the transaction would result in a loss of $1,500.

A Personal Computer That Originally Cost $5,000 Has No Estimated