Question

Suppose Ms. Smith sells her 2018 Honda Fit next year. The original cost of the vehicle was $10,000. During the time she has owned the car she has taken $3,000 dollars of deprecation on it. Ms. Williams sells the car for $9,000. What is result of the transaction? A. An ordinary loss of $1,000 B. Long-term capital gain of $2,000 C. An ordinary gain of $2,000 D. An ordinary gain of $6,000

Answer 1

Answer:

C. An ordinary gain of $2,000

Explanation:

Let's begin by listing out the given parameters:

Original Cost (C) = $10,000, Depreciation (D) = $3,000,

Sale Price (S) = $9,000

Worth of Vehicle (W) = Original Cost - Depreciation

W = C - D = $ (10,000 - 3,000)

W = $7,000

Net Worth (N) = Sale Price - Worth of Vehicle

N = S - W = $ (9,000 - 7,000)

N = $2,000

Hence, Ms Smith made an ordinary profit of $2,000