Question

A company acquired a truck for $79,000 at the beginning of the fiscal year. It has a useful life of 5 years and a residual value of $9,000. The company uses the straight-line method of depreciation. After owning the truck for two years, the company sold it for $34,000. a. Determine depreciation expense for each of the first two years. $ b. Determine the gain or loss resulting from the sale. of $

Answer 1

Answer:

a. $14,000 and $14,000

b. $17,000 loss

Explanation:

a. The computation of the depreciation expense using the straight line method is shown below:

Straight-line method:

= (Acquired value of the truck - residual value) ÷ (useful life)

= (79,000 - $7,000) ÷ (5 years)

= ($70,000) ÷ (5 years)  

= $14,000

In this method, the depreciation is same for all the remaining useful life

So for year 1 and year 2 the same amount of depreciation is to be charged

b. Now for computing the gain or loss first we have to determine the book value which is shown below:

For two years, the depreciation would be

= $14,000 × 2 years

= $28,000

Now the book value would be

= Acquired value of an asset - accumulated depreciation  

= $79,000 - $28,000

= $51,000

So, the loss would be

= Book value - sale value

= $51,000 - $34,000

= $17,000