Amanda Company purchased a computer that cost $10,000.It had an estimated useful life of five years and a residual value of $1,000.The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $5,000 cash. How much of a gain or loss should Amanda record?
A)A gain of $1,000.
B)A loss of $5,000.
C)A gain of $400.
D)A loss of $400.

Question

Quizplus · Accepted Answer

The correct answer is C.The computer was depreciated by the straight-line method, which means that the depreciation expense is the same each year. The depreciation expense is calculated by dividing the cost of the computer minus the residual value by the useful life. In this case, the depreciation expense is ($10,000 - $1,000) / 5 = $1,800.The computer was sold at the end of the third year of use for $5,000 cash. The book value of the computer at the end of the third year is $10,000 - (3 x $1,800) = $4,600. Therefore, the gain on the sale of the computer is $5,000 - $4,600 = $400.

Amanda Company Purchased a Computer That Cost $10,000