Ben bought an ice cream machine 2 years ago for $8,000. The depreciation life for ice cream machines is 4 years. Ben uses straight line depreciation and a convention of taking one-half year's depreciation in the first year. Ben just sold his machine to Jerry for $6,000. What will be Ben's Capital Gain/(Loss)on this transaction?

Question

Quizplus · Accepted Answer

The machine depreciates $2,000 per year ($8,000/4 years). After 2 years, it has depreciated $3,000 (1/2 of $2,000 in the first year and $2,000 in the second year). The book value is $5,000 ($8,000 - $3,000). Selling it for $6,000 results in a $1,000 gain ($6,000 - $5,000).

Ben Bought an Ice Cream Machine 2 Years Ago for $8,000