An asset is purchased on January 1 for $48,200. It is expected to have a useful

Question

An asset is purchased on January 1 for $48,200. It is expected to have a useful life of four years after which it will have an expected residual value of $6,700. The company uses the straight-line method. If it is sold for $33,400 exactly two years after it is purchased, the company will record a:

loss of $5,950.

loss of $8,850.

gain of $8,850.

gain of $5,950.

An asset is purchased on January 1 for $48,200. It is expected to have a useful life of four years after which it will have an expected residual value of $6,700. The company uses the straight-line method. If it is sold for $33,400 exactly two years after it is purchased, the company will record a:

Explanation / Answer

Depreciation expense =(Cost-Residual value)/Total useful life

=(48200-6700)/4=$10375

Hence book value at end of 2 years=$48200-(10375*2)=$27450

Hence gain on sales=(33400-27450)=$5950(D).

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