A firm acquires a car for company business.The car costs $12,000, has a useful life of 5 years, and a salvage value of $2,000.The straight-line method of depreciation is used.What is the gain or loss on retirement if the car is sold for $5,000 after three years of use?

Question

Quizplus · Accepted Answer

Using the straight-line method, the annual depreciation is calculated as follows:
Depreciation expense = (Cost - Salvage value) / Useful life = ($12,000 - $2,000) / 5 = $2,000 per year.
After three years, the accumulated depreciation would be 3 x $2,000 = $6,000.
Therefore, the book value of the car would be $12,000 - $6,000 = $6,000.
If the car is sold for $5,000, there would be a loss of $1,000 ($5,000 - $6,000). Therefore, the best answer is B.

A Firm Acquires a Car for Company Business