The Johnson Company bought a truck costing $60,000 two years ago. The truck's estimated life was six years at the time of purchase. It was accounted for by using straight line depreciation with zero salvage value. If the truck was sold yesterday for $65,000, what is the capital gain that must be reported on the sale of the truck?

Question

Quizplus · Accepted Answer

The annual depreciation expense for the truck is $60,000/6 = $10,000 per year.
After two years, the accumulated depreciation would be $20,000 ($10,000/year x 2 years).
Therefore, the book value of the truck would be $60,000 - $20,000 = $40,000.
When the truck is sold for $65,000, the capital gain is $65,000 - $40,000 = $25,000. Therefore, the answer is choice B) $25,000.

The Johnson Company Bought a Truck Costing $60,000 Two Years