Question:
On January 1, year 1, Raven Limo service, incorporated paid $64,000 cash to purchase a limousine. The limo was expected to have a six-year useful life and a $10,000 salvage value. On January 1, year 5 the limo was sold for $30,000 cash. Assuming Raven uses straight-line depreciation, the company would recognize a
a. $2,000 loss.
b. $2,000 gain.
c. $20,000 loss.
d. $20,000 gain.
Answer:
Annual depreciation = ($64,000 – $10,000) / 6
= $9,000
Accumulated deprecation for 4 years = $9,000*4
= $36,000
Book value at the end of 4 years = $64,000 – $36,000
= $28,000
Sale value of Limo = $30,000
Gain on sale = $30,000 – $28,000
= $2,000
b. $2,000 gain.
Related Questions:
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