Question

Wonder Company sells a plant asset that originally cost $720,000 for $240,000 on December 31. The accumulated depreciation account had a balance of $360,000 after the current year's depreciation had been recorded. The company should recognize a: Select one:
a. $240,000 loss on disposal
b. $120,000 gain on disposal
c. $240,000 gain on disposal
d. $120,000 loss on disposal

Answer 1

Answer:

The company should recognize d. $120,000 loss on disposal

Explanation:

Companies frequently sell plant assets to dispose them. To recognize gain or loss on disposal:

First, the company calculates the carrying amount of the asset by using the original cost of the asset, minus all accumulated depreciation and any accumulated impairment charges.

Then, subtract this carrying amount from the sale price of the asset. If the remainder is positive, it is a gain and if the remainder is negative, it is a loss .

In Wonder Company:

The carrying amount of the asset = $720,000 - $360,000 = $360,000

Sales price -  carrying amount of the asset = $240,000 - $360,000 = -$120,000 <0

The company should recognize $120,000 loss on disposal