On February 1, 2013, James Co., which uses straight-line depreciation, purchased equipment for $88,000 with a useful life of 12 years and $4,000 salvage value. On February 1, 2017, the equipment was sold for $56,000. Which of the following would James recognize as a result of this disposition?

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To determine the gain or loss on the sale of the equipment, we need to calculate its book value as of February 1, 2017. Straight-line depreciation is calculated as (cost - salvage value) / useful life, so the accumulated depreciation as of February 1, 2017, is (4/12) x $88,000 = $29,333. Therefore, the book value of the equipment on February 1, 2017, is $88,000 - $29,333 = $58,667. Since the equipment was sold for $56,000, James would recognize a loss of $2,667 ($58,667 book value - $56,000 sale price). However, this loss is limited to the equipment's original salvage value of $4,000, so the actual loss recognized is $4,000.