On January 1, Year 1, Raven Limo Service, Incorporated paid $74,000 cash to purchase a limousine. The limo was expected to have a five-year useful life and a $14,000 salvage value. On January 1, Year 3 the limo was sold for $54,000 cash. Assuming Raven uses straight-line depreciation, the Company would recognize a
A)$4,000 loss
B)$4,000 gain
C)$6,000 loss
D)$6,000 gain

Question

Quizplus · Accepted Answer

The limo depreciates $12,000 per year (($74,000 - $14,000) / 5 years). After 2 years, accumulated depreciation is $24,000. The book value at sale is $50,000 ($74,000 - $24,000). Selling for $54,000 results in a $4,000 gain ($54,000 - $50,000).

On January 1, Year 1, Raven Limo Service, Incorporated Paid