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Homework answers / question archive / Carter Company sold an asset at the end of the eighth year of its estimated life for $10,000 cash

Carter Company sold an asset at the end of the eighth year of its estimated life for $10,000 cash

Accounting

Carter Company sold an asset at the end of the eighth year of its estimated life for $10,000 cash. The asset's life was originally estimated to be 10 years. The original cost was $50,000 with an estimated residual value of $5,000. The asset was being depreciated using the straight-line method. What was the gain or loss on the disposal? A. $1,000 loss. B. $4,000 loss. C. $5,500 gain. D. $10,000 gain. 
 

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Answer

B.

Explanation

First we calculate Depreciation using Straight-line Method:

Annual Depreciation = (Cost of Asset - Salvage Value)/Estimated Life of Asset

= ($50,000 - $5,000)/10

= $45,000/10

Annual Depreciation = $4,500

 

Accumulated Depreciation for 8 Years = $4,500*8 = $36,000

 

Book Value at the End of 8 Years = $50,000 - $36,000 = $14,000

 

Gain (Loss) on Sales of Asset = Sale Value of Asset - Book Value at the End of 8 Years 

= $10,000 - $14,000

= -$4,000

So, there is loss of $4,000.

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