A plant asset cost $45,000 when it was purchased on January 1, 2003. It was depreciated by the straight-line method based on a 9-year life with no salvage value. On June 30, 2010, the asset was discarded with no cash proceeds. What gain or loss should be recognized on the retirement?

Question

Quizplus · Accepted Answer

The asset was used for 7.5 years (half of its expected life of 9 years). The accumulated depreciation up to June 30, 2010 would be $31,875 (annual depreciation of $5,000 [$45,000/9] multiplied by 6.375 years [January 1 to June 30]). The book value of the asset at June 30, 2010 would be $13,125 ($45,000 cost minus $31,875 accumulated depreciation). Since there are no cash proceeds from the retirement of the asset, a loss should be recognized for the book value of the asset of $13,125. Therefore, the answer is C.

A Plant Asset Cost $45,000 When It Was Purchased on January