Rhoundakona Corporation bought property, plant, and equipment on January 1, 2012, at a cost of $35,000. Estimated residual value is $5,000 and the estimated useful life is 8 years. The company uses straight-line depreciation. On January 1, 2015, Rhoundakona's management sells the asset for $25,000. The gain or loss on disposal is:

Question

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The annual depreciation is ($35,000 - $5,000) / 8 = $3,750. By January 1, 2015, 3 years of depreciation have occurred, totaling $11,250. The book value is $35,000 - $11,250 = $23,750. Selling for $25,000 results in a gain of $25,000 - $23,750 = $1,250.

Rhoundakona Corporation Bought Property, Plant, and Equipment on January 1