On January 1, 2021, Jacob Inc. purchased a commercial truck for $48,000 and uses the straight-line depreciation method. The truck has a useful life of eight years and an estimated residual value of $8,000.
On December 31, 2022, the truck was exchanged for a new truck valued at $60,000. Jacob received a trade allowance of $35,000 on the exchange with the remaining $25,000 paid in cash. What amount of gain or loss should Jacob Inc. record on December 31, 2022?
A) Gain, $5,000.
B) Loss, $18,000.
C) Loss, $38,000.
D) Loss, $3,000.
Answer: D
Alliance Products purchased equipment that cost $120,000. It had an estimated useful life of four years and no residual value. The equipment was depreciated by the straight-line method and was sold at the end of the second year of use.
For what amount should Alliance record the gain or loss if the equipment is sold for $65,000?
A) Gain of $5,000.
B) Loss of $5,000.
C) Neither a gain nor a loss since the equipment was sold at its book value.
D) Neither a gain nor a loss since the gain would not be recognized.
Answer: A
Alliance Products purchased equipment that cost $120,000. It had an estimated useful life of four years and no residual value. The equipment was depreciated by the straight-line method and was sold at the end of the third year of use.
For what amount should Alliance record the gain or loss if the equipment is sold for $25,000?
A) A gain of $5,000.
B) A loss of $5,000.
C) Neither a gain nor a loss since the equipment was sold at its book value.
D) Neither a gain nor a loss since the gain would not be recognized.
Answer: B
