An asset's book value is $18,000 on December 31,Year 5.The asset has been depreciated at an annual rate of $3,000 on the straight-line method.Assuming the asset is sold on December 31,Year 5 for $15,000,the company should record:
A)A loss on sale of $12,000.
B)A gain on sale of $12,000.
C)Neither a gain nor a loss is recognized on this transaction.
D)A gain on sale of $3,000.
E)A loss on sale of $3,000.

Question

Quizplus · Accepted Answer

The asset's book value on December 31, Year 5 is $18,000. However, it is sold for $15,000. Therefore, there is a loss on sale of $3,000. The gain or loss on sale of an asset is calculated by comparing the selling price of the asset to its book value. Since the selling price is less than the book value, there is a loss on sale of $3,000. Therefore, the correct answer is E - a loss on sale of $3,000.

An Asset's Book Value Is $18,000 on December 31,Year 5