On January 1,2018,Dunbar Echo Co.sells a machine for $46,000.The machine was originally purchased on January 1,2016 for $80,000.The machine was estimated to have a useful life of 5 years and a residual value of $0.Dunbar Echo uses straight-line depreciation.In recording this transaction:
A)a loss of $2,000 would be recorded.
B)a gain of $2,000 would be recorded.
C)a loss of $34,000 would be recorded.
D)a gain of $46,000 would be recorded.

Question

Quizplus · Accepted Answer

Annual depreciation expense = (Cost − Residual value)× (1 ÷ Useful life)
= ($80,000 − $0)× (1 ÷ 5)= $16,000
Accumulated depreciation = 2016 depreciation expense + 2017 depreciation expense
= $16,000 + $16,000 = $32,000
Gain (loss)on disposal = Proceeds from sale − Book value at time of sale
Gain (loss)on disposal = Proceeds from sale − (Cost − Accumulated depreciation at time of sale)
= $46,000 − ($80,000 − $32,000)= ($2,000)