An asset is purchased on January 1 for $40,000.It is expected to have a useful life of five years after which it will have an expected salvage value of $5,000.The company uses the straight-line method.If it is sold for $30,000 exactly two years after its purchase,the company will record a:
A)gain of $6,000.
B)gain of $4,000.
C)loss of $4,000.
D)loss of $6,000.

Question

Quizplus · Accepted Answer

Depreciation: Year 1: ($40,000 - $5,000)* (1/5)= $7,000
Year 2: ($40,000 - $5,000)* (1/5)= $7,000 Total for both years: $14,000
Net book value: $40,000 - $14,000 = $26,000
Gain (loss)= $30,000 - $26,000 = $4,000.

An Asset Is Purchased on January 1 for $40,000