Question

An asset's book value is $19,500 on December 31, Year 5. Assuming the asset is sold on December 31, Year 5 for $13,500, the company should record: Multiple Choice Neither a gain nor a loss is recognized on this transaction. A gain on sale of $6,000. A gain on sale of $12,750. A loss on sale of $6,000. A loss on sale of $12,750.

Answer 1

The company should record a loss on sale of $6,000.

What is asset book value?

Book value is the worth of the asset or the amount left undepreciated at a particular point in time.

This implies that if the cash received in respect of the asset is more than the book value, there would be gains, and when the cash is less, that would result in losses. But in this case, the latter situation applies as shown in the loss computation below:

Selling an asset whose worth is $19,500 for $13,500 means that the company has lost $6,000 as computed thus:

Loss on asset=sales proceeds-book value

loss on asset=$13,500-$19,500

loss on asset=-$6,000

In essence the second to the last option is correct.

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