An asset was purchased for $37,000 on January 1, 2019. The asset's estimated useful life was five years, and its residual value was $9000. The straight-line method of depreciation was used. Calculate the gain or loss if the asset is sold for $19,000 on December 31, 2019, the last day of the accounting period.

Question

Quizplus · Accepted Answer

The annual depreciation expense is calculated as follows:

Depreciation expense = (Cost - Residual value) / Useful life
Depreciation expense = ($37,000 - $9,000) / 5 years
Depreciation expense = $5,600 per year

For the period January 1, 2019, to December 31, 2019, the depreciation expense would be $5,600 * 12/12 = $5,600.

Therefore, the asset's carrying value on December 31, 2019, would be:

Carrying value = Cost - Accumulated depreciation
Carrying value = $37,000 - $5,600
Carrying value = $31,400

If the asset is sold for $19,000, there would be a loss on disposal of:

Loss on disposal = Selling price - Carrying value
Loss on disposal = $19,000 - $31,400
Loss on disposal = $12,400

Therefore, the answer is (B) $12,400 loss.

An Asset Was Purchased for $37,000 on January 1, 2019