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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. 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.
Expert Solution
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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