Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000.The company sells the equipment for cash of $42,000.At the time of sale,the company should record:
A)A gain on sale of $2,000.
B)A loss on sale of $2,000.
C)A loss on sale of $5,000.
D)A gain on sale of $5,000.
E)A loss on sale of $45,000.

Question

Quizplus · Accepted Answer

To determine the gain or loss on the sale of an asset, we need to compare the amount received from the sale (cash received) to the asset's net book value.

Net book value = cost of asset - accumulated depreciation

In this case, the net book value of the asset is:

$87,000 - $40,000 = $47,000

Since the cash received from the sale is only $42,000, the company will record a loss on sale of:

$42,000 - $47,000 = -$5,000

Therefore, the correct answer is C, a loss on sale of $5,000.

Martinez Owns an Asset That Cost $87,000 with Accumulated Depreciation