Question

On December 31, 2017, a company sells a plant asset that originally cost $375,000, receiving cash of $125,000. The accumulated depreciation account had a balance of $150,000 after the current year's depreciation of $37,500 had been recorded. The company should recognize a: ___________?

Answer 1

Answer:

$100,000 loss on disposal

Explanation:

The current value (V) of the plant asset is the original $375,000 subtracted by the accumulated depreciation until the end of the current year,  $150,000:

$V=\ 375,000 -\ 150,000 =\ 225,000$

The gain or loss from this transaction is measured by the amount received in cash subtracted by the current value of the plant asset:

$\ 125,000-\ 225,000 = -\ 100,000$

Therefore, the company should recognize a $100,000 loss on disposal.